Ares Commercial Real Estate Corporation (NYSE: ACRE) and iStar Financial (NYSE:STAR) are both small-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their analyst recommendations, profitability, institutional ownership, risk, valuation, earnings and dividends.

Volatility & Risk

Ares Commercial Real Estate Corporation has a beta of 0.69, indicating that its stock price is 31% less volatile than the S&P 500. Comparatively, iStar Financial has a beta of 1.25, indicating that its stock price is 25% more volatile than the S&P 500.

Dividends

Ares Commercial Real Estate Corporation pays an annual dividend of $1.08 per share and has a dividend yield of 7.9%. iStar Financial does not pay a dividend. Ares Commercial Real Estate Corporation pays out 77.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Institutional & Insider Ownership

65.2% of Ares Commercial Real Estate Corporation shares are held by institutional investors. Comparatively, 83.4% of iStar Financial shares are held by institutional investors. 1.8% of Ares Commercial Real Estate Corporation shares are held by company insiders. Comparatively, 4.4% of iStar Financial shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Ares Commercial Real Estate Corporation and iStar Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ares Commercial Real Estate Corporation 45.06% 7.07% 2.03%
iStar Financial 32.82% 22.21% 4.79%

Analyst Recommendations

This is a summary of current ratings for Ares Commercial Real Estate Corporation and iStar Financial, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Commercial Real Estate Corporation 1 2 3 0 2.33
iStar Financial 0 2 0 0 2.00

Ares Commercial Real Estate Corporation currently has a consensus target price of $14.31, suggesting a potential upside of 4.85%. iStar Financial has a consensus target price of $14.00, suggesting a potential upside of 15.32%. Given iStar Financial’s higher probable upside, analysts plainly believe iStar Financial is more favorable than Ares Commercial Real Estate Corporation.

Valuation and Earnings

This table compares Ares Commercial Real Estate Corporation and iStar Financial’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Ares Commercial Real Estate Corporation $45.12 million 8.64 $39.98 million $1.40 9.75
iStar Financial $626.30 million 1.40 $243.53 million $1.83 6.63

iStar Financial has higher revenue and earnings than Ares Commercial Real Estate Corporation. iStar Financial is trading at a lower price-to-earnings ratio than Ares Commercial Real Estate Corporation, indicating that it is currently the more affordable of the two stocks.

Summary

iStar Financial beats Ares Commercial Real Estate Corporation on 10 of the 16 factors compared between the two stocks.

Ares Commercial Real Estate Corporation Company Profile

Ares Commercial Real Estate Corporation is a specialty finance company. The Company is primarily engaged in originating and investing in commercial real estate (CRE) loans and related investments. The Company operates through principal lending segment. Its target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investment opportunities, including commercial mortgage-backed securities. These investments are generally held for investment and are secured, directly or indirectly, by office, multifamily, retail, industrial, lodging, senior-living, self-storage and other commercial real estate properties, or by ownership interests therein. Through the Company’s manager, Ares Commercial Real Estate Management LLC, it has investment professionals located across the United States and Europe who directly source loan opportunities for the Company with owners, operators and sponsors of CRE properties.

iStar Financial Company Profile

iStar Inc. finances, invests in and develops real estate and real estate related projects as part of its integrated investment platform. The Company’s four business segments are Real Estate Finance, Net Lease, Operating Properties, and Land and Development. The Real Estate Finance portfolio consists of senior and mezzanine real estate loans that may be either fixed-rate or variable-rate. The Net Lease portfolio consists of properties owned by the Company and leased to single tenants, where the properties are subject to long-term leases. The Operating Properties portfolio consists of commercial and residential properties, which represent a pool of assets across a range of geographies and property types. The Land and Development portfolio consists of land entitled for master planned communities, as well as waterfront and urban infill land parcels located throughout the United States. Its Land and Development projects include Great Oaks, Sage Scottsdale, Naples Reserve and Coney Island.

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