Assessing Apollo Commercial Real Estate Finance (ARI) Valuation After Mixed Recent Returns

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Recent performance and business snapshot

Apollo Commercial Real Estate Finance (ARI) has drawn investor attention after a mixed stretch in its recent returns, with the stock roughly flat over the past month but higher over the past 3 months and year to date.

The company operates as a commercial mortgage REIT, originating and managing real estate related debt, and reports revenue of US$268.5 million and net income of US$112.1 million on a market value of about US$1.45b.

See our latest analysis for Apollo Commercial Real Estate Finance.

At a share price of US$10.94, ARI has had a slightly weaker 30 day share price return alongside a modest 90 day gain. Its 1 year total shareholder return of 23.4% and 3 year total shareholder return of 51% point to stronger long term rewards.

If you are comparing ARI with other income and financials orientated ideas, this is a good moment to see what else is moving and check out 20 top founder-led companies

With ARI trading at US$10.94 and only a small gap to a consensus price target of US$11.60, the key question is whether the current valuation offers upside or if the market is already pricing in future growth.

Most Popular Narrative: 3.7% Overvalued

The most followed narrative puts Apollo Commercial Real Estate Finance’s fair value at $10.55, slightly below the last close of $10.94, which suggests only a small valuation gap.

The analysts have a consensus price target of $10.55 for Apollo Commercial Real Estate Finance based on their expectations of its future earnings growth, profit margins and other risk factors. In order for you to agree with the analysts, you would need to believe that by 2028, revenues will be $185.3 million, earnings will come to $165.8 million, and it would be trading on a PE ratio of 11.4x, assuming you use a discount rate of 8.8%.

Read the complete narrative.

Curious what sits behind that valuation call? Revenue contraction, higher margins and a different earnings multiple all have to line up. The full narrative shows how.

Result: Fair Value of $10.55 (OVERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, there are still a few watchpoints, including ARI’s planned leverage increase and reliance on capital markets liquidity, that could shift the current valuation story.

Find out about the key risks to this Apollo Commercial Real Estate Finance narrative.

Another take on ARI’s valuation

The analyst narrative leans on detailed earnings forecasts, but the current P/E of 13x tells a slightly different story. It sits above the US Mortgage REITs industry at 11.5x and above a fair ratio of 11.3x, which points to some valuation risk if sentiment cools.

For a closer look at how this P/E gap might matter for future returns, check the valuation breakdown in the See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With mixed signals on valuation so far, the next move is to look through the full picture yourself and act while sentiment is still split, starting with the 3 key rewards and 2 important warning signs.

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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.

Companies discussed in this article include ARI.

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