Value-focused investors continually scout for stocks priced below their intrinsic value. One such stock that commands attention is Sun Communities Inc (SUI, Financial). Currently priced at 115.11, the stock recorded a daily loss of 1.81% and a 3-month decrease of 11.73%. According to its GF Value, the fair valuation of the stock is $219.79.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded. It is calculated based on three factors:
- 1. Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- 2. GuruFocus adjustment factor based on the company's past returns and growth.
- 3. Future estimates of the business performance.
We believe the GF Value Line is the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Why Sun Communities (SUI, Financial) Might Be a Value Trap
Despite its seemingly attractive valuation, certain risk factors associated with Sun Communities should not be overlooked. These risks are primarily reflected through its low Altman Z-score of 0.9. These indicators suggest that Sun Communities, despite its apparent undervaluation, might be a potential value trap. This complexity underscores the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-Score
Before delving into the details, let's understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
A Snapshot of Sun Communities
Sun Communities is a residential REIT that focuses on owning manufactured housing, residential vehicle communities, and marinas. The company currently owns a portfolio of 671 properties, which includes 354 manufactured housing communities, 182 residential vehicle communities, and 135 marina properties. Sun targets owning properties that are desirable as second homes or vacation properties with nearly 50% of the portfolio located in either Florida or Michigan near major bodies of water.
Dissecting Sun Communities's Low Altman Z-Score
A dissection of Sun Communities's Altman Z-score reveals Sun Communities's financial health may be weak, suggesting possible financial distress:
Conclusion: Is Sun Communities a Value Trap?
Based on the analysis of Sun Communities's financial health and its low Altman Z-Score, it appears that the company might be a potential value trap. Despite its seemingly attractive valuation, the risk factors associated with the company should not be ignored. Therefore, thorough due diligence is crucial for investors before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
