It’s understandable if you feel frustrated when a stock you own sees a lower share price. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. So while the KKR Real Estate Finance Trust Inc. (NYSE:KREF) share price is down 14% in the last year, the total return to shareholders (which includes dividends) was -6.4%. And that total return actually beats the market decline of 20%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 7.3% in three years.

Given the past week has been tough on shareholders, let’s investigate the fundamentals and see what we can learn.

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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

Unfortunately KKR Real Estate Finance Trust reported an EPS drop of 12% for the last year. We note that the 14% share price drop is very close to the EPS drop. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Instead, the change in the share price seems to reduction in earnings per share, alone.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Optimism around KKR Real Estate Finance Trust (NYSE:KREF) delivering new earnings growth may be shrinking as stock declines 4.2% this past week
NYSE:KREF Earnings Per Share Growth September 23rd 2022

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for KKR Real Estate Finance Trust the TSR over the last 1 year was -6.4%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Although it hurts that KKR Real Estate Finance Trust returned a loss of 6.4% in the last twelve months, the broader market was actually worse, returning a loss of 20%. Longer term investors wouldn’t be so upset, since they would have made 6%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we’ve spotted 3 warning signs for KKR Real Estate Finance Trust (of which 1 is a bit unpleasant!) you should know about.

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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