Ares Commercial Real Estate (NYSE:ACRE) and AFC Gamma (NASDAQ:AFCG) Critical Analysis

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

Analyst Recommendations

This is a summary of current ratings and recommmendations for AFC Gamma and Ares Commercial Real Estate, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
AFC Gamma	0	3	0	1	2.50
Ares Commercial Real Estate	1	5	0	0	1.83

AFC Gamma currently has a consensus target price of $5.75, suggesting a potential upside of 26.37%. Ares Commercial Real Estate has a consensus target price of $5.31, suggesting a potential upside of 10.91%. Given AFC Gamma’s stronger consensus rating and higher possible upside, equities research analysts clearly believe AFC Gamma is more favorable than Ares Commercial Real Estate.

Dividends

AFC Gamma pays an annual dividend of $0.60 per share and has a dividend yield of 13.2%. Ares Commercial Real Estate pays an annual dividend of $0.60 per share and has a dividend yield of 12.5%. AFC Gamma pays out -146.3% of its earnings in the form of a dividend. Ares Commercial Real Estate pays out -176.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Earnings & Valuation

This table compares AFC Gamma and Ares Commercial Real Estate”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
AFC Gamma	$51.99 million	1.98	$16.78 million	($0.41)	-11.10
Ares Commercial Real Estate	$69.65 million	3.78	-$34.99 million	($0.34)	-14.09

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

Risk & Volatility

AFC Gamma has a beta of 1.07, meaning that its share price is 7% more volatile than the S&P 500. Comparatively, Ares Commercial Real Estate has a beta of 1.32, meaning that its share price is 32% more volatile than the S&P 500.

Institutional and Insider Ownership

26.5% of AFC Gamma shares are held by institutional investors. Comparatively, 41.3% of Ares Commercial Real Estate shares are held by institutional investors. 26.8% of AFC Gamma shares are held by insiders. Comparatively, 1.8% of Ares Commercial Real Estate shares are held 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.

Profitability

This table compares AFC Gamma and Ares Commercial Real Estate’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
AFC Gamma	-25.35%	10.06%	5.78%
Ares Commercial Real Estate	-29.57%	-5.44%	-1.78%

Summary

AFC Gamma beats Ares Commercial Real Estate on 10 of the 16 factors compared between the two stocks.

About AFC Gamma

AFC Gamma, Inc. originates, structures, underwrites, and invests in senior secured loans, and other various commercial real estate loans and debt securities for established companies operating in the cannabis industry. It primarily originates loans structured as senior loans secured by real estate, equipment, and licenses and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. The company has elected and qualified to be taxed as a real estate investment trust for the United States federal income tax purposes under the Internal Revenue Code of 1986. AFC Gamma, Inc. was incorporated in 2020 and is based in West Palm Beach, Florida.

About Ares Commercial Real Estate

Ares Commercial Real Estate Corporation, a specialty finance company, originates and invests in commercial real estate (CRE) loans and related investments in the United States. It provides a range of financing solutions for the owners, operators, and sponsors of CRE properties. The company originates senior mortgage loans, subordinate debt and preferred equity products, mezzanine loans, and other CRE investments, including commercial mortgage-backed securities. It has elected and qualified to be taxed as a real estate investment trust for the United States federal income tax purposes under the Internal Revenue Code of 1986. Ares Commercial Real Estate Corporation was incorporated in 2011 and is based in New York, New York.