Head to Head Analysis: Capstead Mortgage Corporation (CMO) and Ares Commercial Real Estate Corporation (ACRE)

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

Valuation and Earnings

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Capstead Mortgage Corporation $88.27 million 10.32 $58.62 million $0.61 15.54
Ares Commercial Real Estate Corporation $45.12 million 8.31 $39.98 million $1.40 9.38

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

Volatility & Risk

Capstead Mortgage Corporation has a beta of 0.36, suggesting that its stock price is 64% less volatile than the S&P 500. Comparatively, Ares Commercial Real Estate Corporation has a beta of 0.68, suggesting that its stock price is 32% less volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
Capstead Mortgage Corporation 35.05% 7.31% 0.56%
Ares Commercial Real Estate Corporation 45.06% 7.07% 2.03%

Analyst Ratings

This is a breakdown of current ratings for Capstead Mortgage Corporation and Ares Commercial Real Estate Corporation, as provided by MarketBeat.

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

Capstead Mortgage Corporation presently has a consensus price target of $11.00, suggesting a potential upside of 16.03%. Ares Commercial Real Estate Corporation has a consensus price target of $14.31, suggesting a potential upside of 9.01%. Given Capstead Mortgage Corporation’s higher possible upside, analysts plainly believe Capstead Mortgage Corporation is more favorable than Ares Commercial Real Estate Corporation.

Insider and Institutional Ownership

72.6% of Capstead Mortgage Corporation shares are held by institutional investors. Comparatively, 65.2% of Ares Commercial Real Estate Corporation shares are held by institutional investors. 1.7% of Capstead Mortgage Corporation shares are held by insiders. Comparatively, 1.8% of Ares Commercial Real Estate Corporation shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Dividends

Capstead Mortgage Corporation pays an annual dividend of $0.84 per share and has a dividend yield of 8.9%. Ares Commercial Real Estate Corporation pays an annual dividend of $1.08 per share and has a dividend yield of 8.2%. Capstead Mortgage Corporation pays out 137.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. 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. Ares Commercial Real Estate Corporation has increased its dividend for 3 consecutive years.

Summary

Ares Commercial Real Estate Corporation beats Capstead Mortgage Corporation on 9 of the 17 factors compared between the two stocks.

Capstead Mortgage Corporation Company Profile

Capstead Mortgage Corporation operates as a self-managed real estate investment trust (REIT). The Company manages a leveraged portfolio of residential mortgage pass-through securities consisting of relatively short-duration adjustable-rate mortgage (ARM) securities issued and guaranteed by government-sponsored enterprises, either Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or by an agency of the federal government, the Government National Mortgage Association (Ginnie Mae). The Company finances its residential mortgage investments by leveraging its long-term investment capital with secured borrowings consisting primarily of borrowings under repurchase arrangements with commercial banks and other financial institutions. The Company’s portfolio of residential mortgage investments includes residential mortgage investments.

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.

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