U.S. Markets close in 2 hrs 32 mins
  • S&P 500

    4,572.90
    +40.14 (+0.89%)
     
  • Dow 30

    35,298.10
    +269.45 (+0.77%)
     
  • Nasdaq

    14,545.00
    +204.75 (+1.43%)
     
  • Russell 2000

    2,083.13
    +20.35 (+0.99%)
     
  • Crude Oil

    86.91
    -0.05 (-0.06%)
     
  • Gold

    1,847.80
    +4.60 (+0.25%)
     
  • Silver

    24.61
    +0.38 (+1.58%)
     
  • EUR/USD

    1.1334
    -0.0013 (-0.1133%)
     
  • 10-Yr Bond

    1.8330
    +0.0060 (+0.33%)
     
  • Vix

    22.17
    -1.68 (-7.04%)
     
  • GBP/USD

    1.3636
    +0.0025 (+0.1800%)
     
  • USD/JPY

    114.1120
    -0.2410 (-0.2107%)
     
  • BTC-USD

    42,977.11
    +829.62 (+1.97%)
     
  • CMC Crypto 200

    1,027.47
    +32.20 (+3.24%)
     
  • FTSE 100

    7,558.65
    -31.01 (-0.41%)
     
  • Nikkei 225

    27,772.93
    +305.70 (+1.11%)
     

Is Sun Communities, Inc.'s (NYSE:SUI) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Most readers would already be aware that Sun Communities' (NYSE:SUI) stock increased significantly by 11% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Sun Communities' ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Sun Communities

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Sun Communities is:

3.1% = US$191m ÷ US$6.1b (Based on the trailing twelve months to March 2021).

The 'return' is the income the business earned over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.03 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Sun Communities' Earnings Growth And 3.1% ROE

It is hard to argue that Sun Communities' ROE is much good in and of itself. Even when compared to the industry average of 5.1%, the ROE figure is pretty disappointing. Sun Communities was still able to see a decent net income growth of 16% over the past five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared Sun Communities' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 9.9% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is SUI worth today? The intrinsic value infographic in our free research report helps visualize whether SUI is currently mispriced by the market.

Is Sun Communities Efficiently Re-investing Its Profits?

Sun Communities seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 63%, meaning the company retains only 37% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. In spite of this, the company was able to grow its earnings by a fair bit, as we saw above.

Additionally, Sun Communities has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 58% of its profits over the next three years.

Conclusion

On the whole, we do feel that Sun Communities has some positive attributes. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.