For investors using a classic value strategy, the goal is to find companies trading below their intrinsic worth while still showing good underlying business fundamentals. This method, established by Benjamin Graham and made famous by Warren Buffett, looks for a "margin of safety" by purchasing good businesses when they are unpopular with the wider market. A useful way to search for these chances is to look for stocks with good valuation metrics, along with acceptable scores in profitability, financial health, and growth. This pairing indicates a company is not just cheap because of a problem, like a failing business, but may be priced too low by the market for a short time.
One company that recently appeared from this "decent value" search is Sun Communities Inc. (NYSE:SUI), a real estate investment trust (REIT) that owns and runs manufactured housing (MH) and recreational vehicle (RV) communities. The company's fundamental report shows a profile that may interest value-focused investors seeking stability and possible price increase.
Examining Valuation
The central idea of value investing is buying an asset for less than its estimated worth. Sun Communities' valuation metrics offer a good beginning. The stock gets a Valuation Rating of 7 out of 10 from ChartMill, showing it is priced well compared to its financials and future outlook.
- Price-to-Earnings (P/E) Ratio: At 15.72, SUI's P/E ratio is much lower than the industry average of 60.87, doing better than 95% of its Residential REIT peers. It is also far below the current S&P 500 average of 28.06.
- Enterprise Value to EBITDA: This measure, which includes debt, also shows SUI is valued low within its industry, placed better than 95% of competitors.
- Price-to-Free Cash Flow: The stock is priced well on this basis too, with 90% of the industry having a higher valuation.
While the forward P/E ratio seems high, this is partly balanced by good expected earnings growth. The low PEG ratio, which changes the P/E for growth, further indicates the current price may not completely account for the company's future. For a value investor, these metrics point to a possible gap between the market price and the company's financial situation.
Reviewing Financial Health and Profitability
A low-priced stock is only a worthwhile purchase if the company is financially stable. This is where the "margin of safety" idea is important. Sun Communities gets a solid 7 for Financial Health. The company shows good liquidity, with a Current Ratio of 3.59 and a Quick Ratio of 3.24, both in the top 5% of its industry. This signals a strong capacity to meet near-term debts. Also, its Debt-to-Equity ratio of 0.59 is careful and the best among its peers. A stable balance sheet offers protection during economic slowdowns, a key support value investors want.
Profitability is another important part. SUI receives a Profitability Rating of 6. The company has steadily reported positive earnings and operating cash flow over the last five years. Its Return on Assets (7.93%) and Return on Equity (14.02%) are some of the best in the industry. However, the report mentions some strain on margins, with Gross, Operating, and Profit Margins having fallen lately. This varied view suggests a basically profitable company dealing with some cost issues, not one in long-term trouble.
Growth Path and Dividend
Value investing does not mean overlooking growth; it means not paying too much for it. SUI's Growth Rating is a neutral 5. The last year saw a notable 329% jump in Earnings Per Share (EPS), though this comes after a time of moderate decrease. More significant for future valuation, analysts predict strong EPS growth of over 35% each year in the next few years. While Revenue growth is predicted to be a little negative soon, the faster expected EPS growth is a good sign that operational gains may be happening.
As a REIT, Sun Communities must pay out most of its taxable income to shareholders. It provides a dividend yield of 3.36%, which is good compared to the S&P 500's average yield. The company has a steady 10-year history of paying and not cutting its dividend, adding an income part to the total return idea for steady investors.
Final Thoughts: A Prospect for the Value Watchlist
Sun Communities offers an example in current value searching. It is not a very low-value, troubled asset, but instead a company with a strong position in necessary housing and leisure areas, trading at a lower price than its industry. Its high valuation scores are backed by acceptable fundamentals: a very stable balance sheet, historically good returns on capital, and positive earnings growth predictions. The recent margin strains and revenue challenges seem to be the main factors affecting the market's view, possibly creating the low-price chance.
For investors who believe that price and value are not the same, SUI's profile deserves more study. The complete fundamental analysis report for Sun Communities (SUI) gives a more detailed look into all the metrics covered.
Want to find more stocks that match a similar "decent value" description? You can run the search yourself and see the current outcomes using our predefined Decent Value Stocks screener.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any securities. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
