Ares Commercial Real Estate (NYSE:ACRE – Get Free Report) and MFA Financial (NYSE:MFA – Get Free Report) are both small-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their analyst recommendations, dividends, valuation, risk, earnings, profitability and institutional ownership.
Analyst Ratings
This is a summary of recent ratings and recommmendations for Ares Commercial Real Estate and MFA Financial, as reported by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Ares Commercial Real Estate | 2 | 4 | 1 | 0 | 1.86 |
| MFA Financial | 1 | 2 | 4 | 0 | 2.43 |
Ares Commercial Real Estate presently has a consensus target price of $5.00, suggesting a potential upside of 48.37%. MFA Financial has a consensus target price of $9.79, suggesting a potential upside of 47.02%. Given Ares Commercial Real Estate’s higher probable upside, research analysts clearly believe Ares Commercial Real Estate is more favorable than MFA Financial.
Profitability
This table compares Ares Commercial Real Estate and MFA Financial’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Ares Commercial Real Estate | -8.04% | 4.08% | 1.23% |
| MFA Financial | 19.38% | 7.58% | 1.05% |
Dividends
Ares Commercial Real Estate pays an annual dividend of $0.60 per share and has a dividend yield of 17.8%. MFA Financial pays an annual dividend of $1.44 per share and has a dividend yield of 21.6%. Ares Commercial Real Estate pays out -750.0% of its earnings in the form of a dividend. MFA Financial pays out 144.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MFA Financial has raised its dividend for 1 consecutive years. MFA Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Valuation and Earnings
This table compares Ares Commercial Real Estate and MFA Financial”s gross revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Ares Commercial Real Estate | $54.83 million | 3.41 | -$900,000.00 | ($0.08) | -42.12 |
| MFA Financial | $745.06 million | 0.90 | $176.78 million | $1.00 | 6.66 |
MFA Financial has higher revenue and earnings than Ares Commercial Real Estate. Ares Commercial Real Estate is trading at a lower price-to-earnings ratio than MFA Financial, indicating that it is currently the more affordable of the two stocks.
Institutional and Insider Ownership
41.3% of Ares Commercial Real Estate shares are held by institutional investors. Comparatively, 65.3% of MFA Financial shares are held by institutional investors. 2.3% of Ares Commercial Real Estate shares are held by insiders. Comparatively, 1.0% of MFA Financial shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.
Risk and Volatility
Ares Commercial Real Estate has a beta of 1.19, meaning that its share price is 19% more volatile than the S&P 500. Comparatively, MFA Financial has a beta of 1.45, meaning that its share price is 45% more volatile than the S&P 500.
Summary
MFA Financial beats Ares Commercial Real Estate on 12 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 MFA Financial
MFA Financial, Inc., together with its subsidiaries, operates as a real estate investment trust in the United States. It invests in residential mortgage securities, including non-agency mortgage-backed securities, agency MBS, and credit risk transfer securities; residential whole loans, including purchased performing loans, purchased credit deteriorated, and non-performing loans; and mortgage servicing rights related assets. The company was incorporated in 1997 and is based in New York, New York.
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