Ares Commercial Real Estate (NYSE:ACRE – Get Free Report) and Two Harbors Investments (NYSE:TWO – Get Free Report) are both small-cap finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their valuation, analyst recommendations, earnings, institutional ownership, profitability, risk and dividends.
Profitability
This table compares Ares Commercial Real Estate and Two Harbors Investments’ net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Ares Commercial Real Estate | -13.02% | -5.15% | -1.80% |
| Two Harbors Investments | -44.10% | 11.92% | 1.32% |
Analyst Ratings
This is a breakdown of recent ratings and price targets for Ares Commercial Real Estate and Two Harbors Investments, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Ares Commercial Real Estate | 1 | 3 | 1 | 1 | 2.33 |
| Two Harbors Investments | 1 | 7 | 1 | 0 | 2.00 |
Dividends
Ares Commercial Real Estate pays an annual dividend of $0.60 per share and has a dividend yield of 12.3%. Two Harbors Investments pays an annual dividend of $1.36 per share and has a dividend yield of 10.1%. Ares Commercial Real Estate pays out -400.0% of its earnings in the form of a dividend. Two Harbors Investments pays out -54.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Two Harbors Investments has increased its dividend for 1 consecutive years. Ares Commercial Real Estate is clearly the better dividend stock, given its higher yield and lower payout ratio.
Earnings & Valuation
This table compares Ares Commercial Real Estate and Two Harbors Investments”s revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Ares Commercial Real Estate | $69.65 million | 3.86 | -$34.99 million | ($0.15) | -32.53 |
| Two Harbors Investments | $450.15 million | 3.11 | $298.17 million | ($2.50) | -5.37 |
Two Harbors Investments has higher revenue and earnings than Ares Commercial Real Estate. Ares Commercial Real Estate is trading at a lower price-to-earnings ratio than Two Harbors Investments, indicating that it is currently the more affordable of the two stocks.
Institutional & Insider Ownership
41.3% of Ares Commercial Real Estate shares are owned by institutional investors. Comparatively, 64.2% of Two Harbors Investments shares are owned by institutional investors. 1.8% of Ares Commercial Real Estate shares are owned by company insiders. Comparatively, 0.7% of Two Harbors Investments shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.
Risk and Volatility
Ares Commercial Real Estate has a beta of 1.26, meaning that its share price is 26% more volatile than the S&P 500. Comparatively, Two Harbors Investments has a beta of 1.19, meaning that its share price is 19% more volatile than the S&P 500.
Summary
Ares Commercial Real Estate beats Two Harbors Investments on 10 of the 17 factors compared between the two stocks.
About Ares Commercial Real Estate
Ares Commercial Real Estate Corporation, a specialty finance company, originates and invests in commercial real estate (CRE) loans and related investments in the United States. It provides a range of financing solutions for the owners, operators, and sponsors of CRE properties. The company originates senior mortgage loans, subordinate debt and preferred equity products, mezzanine loans, and other CRE investments, including commercial mortgage-backed securities. It has elected and qualified to be taxed as a real estate investment trust for the United States federal income tax purposes under the Internal Revenue Code of 1986. Ares Commercial Real Estate Corporation was incorporated in 2011 and is based in New York, New York.
About Two Harbors Investments
Two Harbors Investment Corp. invests in, finances, and manages mortgage servicing rights (MSRs), agency residential mortgage-backed securities (RMBS), and other financial assets through RoundPoint in the United States. The company target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, hybrid mortgage loans, or derivatives; and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions. It qualifies as a REIT for federal income tax purposes. As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in St. Louis Park, Minnesota.
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