For investors looking for chances in the market, a disciplined method often gives the best outcomes. One such method is value investing, a plan that involves finding stocks selling for less than their true worth. The aim is to find companies that are fundamentally strong but missed or priced too low by the wider market, offering a possible "margin of safety" for the investor. A useful way to search for such options is by using fundamental ratings that evaluate key areas like valuation, financial condition, earnings, and expansion. A stock that rates well on valuation while keeping acceptable ratings in the other areas can be a strong beginning for more study.
Sun Communities Inc. (NYSE:SUI) recently appeared through such a "Decent Value" search method. The real estate investment trust (REIT), which owns and runs manufactured housing and recreational vehicle communities, offers an interesting example. According to its detailed fundamental analysis report, SUI gets an overall fundamental rating of 6 out of 10, but its separate part ratings show a more detailed view that fits a value-focused search.
Valuation: The Heart of the Value Case
The main filter in a value search is a good valuation, and this is where Sun Communities is most clear. The company's ChartMill Valuation Rating is a firm 7 out of 10. This score comes from several measures that hint the stock may be priced below its similar companies and the wider market.
- Price-to-Earnings (P/E) Ratio: At 15.36, SUI's P/E ratio is seen as "fair" on its own. However, compared to its industry, Residential REITs, which have an average P/E of 62.15, SUI costs less than 95% of its peers. It also sells at a lower price than the S&P 500's average P/E of 26.39.
- Enterprise Value to EBITDA: This measure, which includes debt, shows SUI is valued lower than 100% of the companies in its industry.
- Price-to-Free Cash Flow: In the same way, this ratio shows SUI costs less than 95% of its industry rivals.
For a value investor, these comparing measures are key. They show the market may be using a large discount for SUI compared to its sector, possibly making a chance if the company's basic business condition is sound.
Financial Health: A Steady Base
A low price alone can be a problem if the company's finances are poor. So, a value plan must require acceptable financial condition to make sure the company can handle economic changes. Sun Communities gets a 7 out of 10 for Health, giving a fairly strong base.
The company's strong points are clearly in cash availability:
- Its Current Ratio of 3.59 and Quick Ratio of 3.24 are very strong, showing no issue in meeting near-term needs and doing better than 95% of industry peers.
- The Debt-to-Equity ratio of 0.59 shows a medium level of debt use and is actually the top in its industry group.
While the report points out a worrying Altman-Z score that hints at some bankruptcy chance, it importantly notes that this score is still among the top (top 5%) in its industry. This shows the need for sector setting; what could be a caution in one industry can be standard in another, like property which needs much capital.
Profitability and Growth: Evaluating the Operation
A value stock should not be a still one. Acceptable earnings confirm the business model functions, while expansion possibilities give the reason for the market to look again at its price. SUI's Profitability rating is a middle 6, backed by strong returns on assets (7.93%) and equity (14.02%), which do better than most peers. Its earnings margin of 40.01% is also in the top group of its industry. These numbers suggest that, even with a recent drop in some margins, the main activities stay highly profitable, a key point for a value investor looking for quality at a lower price.
The Growth rating of 5 gives a mixed but changing story. The past year saw a notable 329.57% jump in Earnings Per Share (EPS), though income fell. More key for future valuation, experts predict very strong EPS expansion of over 35% each year in the coming years. This expected speed-up in earnings growth helps explain the stock's low P/E ratio, a link shown by a good PEG ratio. This "expansion at a fair price" situation is just what value searches try to find.
Conclusion: An Option for More Study
Sun Communities Inc. (SUI) shows the kind of stock a "Decent Value" search is made to find. It trades at a large discount to its industry based on several valuation measures, yet it is backed by a financially sound balance sheet with excellent cash availability, clearly profitable activities, and predictions for strong earnings expansion. This mix of points suggests the market's current price may not completely show the company's fundamental position and future possibility, making it a notable option for value investors to study more.
This study was based on a specific search plan. Investors wanting to look at other stocks that fit similar needs of good valuation along with acceptable fundamentals can see the full "Decent Value" search findings here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or a deal to buy or sell any security. The study is based on data and ratings from ChartMill, and investors should do their own study and talk with a qualified financial advisor before making any investment choices. Past results do not show future outcomes.
