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In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term KKR Real Estate Finance Trust Inc. (NYSE:KREF) shareholders have had that experience, with the share price dropping 49% in three years, versus a market return of about 22%.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for KKR Real Estate Finance Trust
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
KKR Real Estate Finance Trust has made a profit in the past. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. Other metrics might give us a better handle on how its value is changing over time.
We note that the dividend seems healthy enough, so that probably doesn’t explain the share price drop. However, the weak share price might be related to the fact revenue has been disappearing at a rate of 50% each year, over three years. In that case, the current EPS might be viewed by some as difficult to sustain.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling KKR Real Estate Finance Trust stock, you should check out this free report showing analyst profit forecasts.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, KKR Real Estate Finance Trust’s TSR for the last 3 years was -29%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!