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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in KKR Real Estate Finance Trust (NYSE:KREF). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Quickly Is KKR Real Estate Finance Trust Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Over the last three years, KKR Real Estate Finance Trust has grown EPS by 7.6% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of KKR Real Estate Finance Trust's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. KKR Real Estate Finance Trust maintained stable EBIT margins over the last year, all while growing revenue 94% to US$168m. That's a real positive.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future KKR Real Estate Finance Trust EPS 100% free.
Are KKR Real Estate Finance Trust Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that KKR Real Estate Finance Trust insiders have a significant amount of capital invested in the stock. Indeed, they hold US$16m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 1.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like KKR Real Estate Finance Trust with market caps between US$1.0b and US$3.2b is about US$3.4m.
The CEO of KKR Real Estate Finance Trust only received US$1.3m in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.
Should You Add KKR Real Estate Finance Trust To Your Watchlist?
As I already mentioned, KKR Real Estate Finance Trust is a growing business, which is what I like to see. Earnings growth might be the main game for KKR Real Estate Finance Trust, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. We should say that we've discovered 4 warning signs for KKR Real Estate Finance Trust (2 are a bit concerning!) that you should be aware of before investing here.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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