- By GF Value
The stock of SunLink Health Systems (AMEX:SSY, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $2.25 per share and the market cap of $15.5 million, SunLink Health Systems stock gives every indication of being significantly overvalued. GF Value for SunLink Health Systems is shown in the chart below.
Because SunLink Health Systems is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 6.4% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. SunLink Health Systems has a cash-to-debt ratio of 2.35, which is better than 67% of the companies in the industry of Healthcare Providers & Services. GuruFocus ranks the overall financial strength of SunLink Health Systems at 6 out of 10, which indicates that the financial strength of SunLink Health Systems is fair. This is the debt and cash of SunLink Health Systems over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. SunLink Health Systems has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $43.9 million and earnings of $0.29 a share. Its operating margin of -2.20% worse than 68% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks SunLink Health Systems's profitability as poor. This is the revenue and net income of SunLink Health Systems over the past years: