Comparing Apollo Commercial Real Estate Finance (NYSE:ARI) and Two Harbors Investment (NYSE:TWO)

Apollo Commercial Real Estate Finance (NYSE:ARI) and Two Harbors Investment (NYSE:TWO) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their risk, valuation, institutional ownership, earnings, dividends, analyst recommendations and profitability.

Analyst Ratings

This is a summary of recent recommendations for Apollo Commercial Real Estate Finance and Two Harbors Investment, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Apollo Commercial Real Estate Finance	1	4	0	0	1.80
Two Harbors Investment	0	6	2	0	2.25

Apollo Commercial Real Estate Finance currently has a consensus price target of $10.25, indicating a potential downside of 6.05%. Two Harbors Investment has a consensus price target of $14.64, indicating a potential upside of 7.04%. Given Two Harbors Investment’s stronger consensus rating and higher probable upside, analysts clearly believe Two Harbors Investment is more favorable than Apollo Commercial Real Estate Finance.

Dividends

Apollo Commercial Real Estate Finance pays an annual dividend of $1.40 per share and has a dividend yield of 12.8%. Two Harbors Investment pays an annual dividend of $1.80 per share and has a dividend yield of 13.2%. Apollo Commercial Real Estate Finance pays out -179.5% of its earnings in the form of a dividend. Two Harbors Investment pays out 101.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Earnings and Valuation

This table compares Apollo Commercial Real Estate Finance and Two Harbors Investment’s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Apollo Commercial Real Estate Finance	$263.01 million	5.90	$58.13 million	($0.78)	-13.99
Two Harbors Investment	$480.36 million	2.95	-$106.37 million	$1.78	7.69

Apollo Commercial Real Estate Finance has higher earnings, but lower revenue than Two Harbors Investment. Apollo Commercial Real Estate Finance is trading at a lower price-to-earnings ratio than Two Harbors Investment, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Apollo Commercial Real Estate Finance and Two Harbors Investment’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Apollo Commercial Real Estate Finance	-28.20%	5.88%	1.38%
Two Harbors Investment	56.90%	2.16%	0.25%

Risk and Volatility

Apollo Commercial Real Estate Finance has a beta of 1.76, indicating that its share price is 76% more volatile than the S&P 500. Comparatively, Two Harbors Investment has a beta of 1.86, indicating that its share price is 86% more volatile than the S&P 500.

Insider & Institutional Ownership

54.4% of Apollo Commercial Real Estate Finance shares are owned by institutional investors. Comparatively, 64.2% of Two Harbors Investment shares are owned by institutional investors. 0.7% of Apollo Commercial Real Estate Finance shares are owned by insiders. Comparatively, 0.6% of Two Harbors Investment shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Summary

Two Harbors Investment beats Apollo Commercial Real Estate Finance on 10 of the 16 factors compared between the two stocks.

About Apollo Commercial Real Estate Finance

Apollo Commercial Real Estate Finance, Inc. operates as a real estate investment trust (REIT) that originates, acquires, invests in, and manages commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments in the United States, the United Kingdom, and Europe. It is qualified as a REIT under the Internal Revenue Code. As a REIT, it would not be subject to federal income taxes, if the company distributes at least 90% of its REIT taxable income to its stockholders. Apollo Commercial Real Estate Finance, Inc. was incorporated in 2009 and is based in New York, New York.

About Two Harbors Investment

Two Harbors Investment Corp. invests in, finances, and manages mortgage servicing rights (MSRs), agency residential mortgage-backed securities (RMBS), and other financial assets through RoundPoint in the United States. The company target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, hybrid mortgage loans, or derivatives; and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions. It qualifies as a REIT for federal income tax purposes. As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in St. Louis Park, Minnesota.