Ares Commercial Real Estate Corporation (NYSE: ACRE) and Orchid Island Capital (NYSE:ORC) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their analyst recommendations, earnings, institutional ownership, valuation, profitability, risk and dividends.

Volatility & Risk

Ares Commercial Real Estate Corporation has a beta of 0.69, indicating that its share price is 31% less volatile than the S&P 500. Comparatively, Orchid Island Capital has a beta of 0.5, indicating that its share price is 50% less volatile than the S&P 500.

Earnings & Valuation

This table compares Ares Commercial Real Estate Corporation and Orchid Island Capital’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Ares Commercial Real Estate Corporation $45.12 million 8.43 $39.98 million $1.40 9.51
Orchid Island Capital $2.97 million 150.40 -$2.72 million ($0.06) -164.31

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

Institutional & Insider Ownership

66.7% of Ares Commercial Real Estate Corporation shares are owned by institutional investors. Comparatively, 20.6% of Orchid Island Capital shares are owned by institutional investors. 1.8% of Ares Commercial Real Estate Corporation shares are owned by insiders. Comparatively, 0.9% of Orchid Island Capital shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a breakdown of current ratings for Ares Commercial Real Estate Corporation and Orchid Island Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Commercial Real Estate Corporation 1 2 3 0 2.33
Orchid Island Capital 0 1 0 0 2.00

Ares Commercial Real Estate Corporation currently has a consensus target price of $14.05, indicating a potential upside of 5.48%. Given Ares Commercial Real Estate Corporation’s stronger consensus rating and higher possible upside, equities analysts plainly believe Ares Commercial Real Estate Corporation is more favorable than Orchid Island Capital.

Profitability

This table compares Ares Commercial Real Estate Corporation and Orchid Island Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ares Commercial Real Estate Corporation 45.06% 7.07% 2.03%
Orchid Island Capital N/A -3.33% -0.35%

Dividends

Ares Commercial Real Estate Corporation pays an annual dividend of $1.08 per share and has a dividend yield of 8.1%. Orchid Island Capital pays an annual dividend of $1.68 per share and has a dividend yield of 17.0%. 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. Orchid Island Capital pays out -2,799.5% of its earnings in the form of a dividend. Orchid Island Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Ares Commercial Real Estate Corporation beats Orchid Island Capital on 12 of the 15 factors compared between the two stocks.

About Ares Commercial Real Estate Corporation

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.

About Orchid Island Capital

Orchid Island Capital, Inc. is a specialty finance company that invests in residential mortgage-backed securities (RMBS). The Company’s business objective is to provide attractive risk-adjusted total returns to its investors over the long term through a combination of capital appreciation and the payment of regular monthly distributions. Its portfolio consists of two categories of Agency RMBS: pass-through Agency RMBS and structured Agency RMBS. It invests in pass-through securities, which are securities secured by residential real property in which payments of both interest and principal on the securities are generally made monthly. The mortgage loans underlying pass-through certificates are classified into three categories, including fixed-rate mortgages, adjustable-rate mortgages (ARMs) and Hybrid ARMs. It invests in structured Agency RMBS, which include collateralized mortgage obligations, interest only securities, inverse interest only securities and principal only securities.

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