DailyTrends.com Company of the Week: Sunset Financial (SFO)
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Sunset is a mortgage REIT that in my opinion is undervalued. It is currently trading at nearly an 17% discount to its approximate current N.A.V. (Net Asset Value)
The company went public last year at $13.00 a share ostensibly as a dividend vehicle for conservative investors, but due to the ineptness of management, the shares now trade at a giant discount to true value.
Management owns only 2-3% of the shares---and takes proportionately high fees which reduce the net income for shareholders. With all that said, they still earned a net of approximately .15/share each of the last two quarters.
However, I find that the most significant thing to note is the fact that OVER 65% of the stock is controlled by funds/institutions and arbitrageurs.
In reality, several very large shareholders and known shareholder activists have express extreme displeasure with the current state of affairs in their filings and perhaps are greatly pressuring the company to either sell itself or have management removed as soon as possible. With either event, the gap between the discount and the NAV would probably nearly be erased, as with proper management the company could easily earn upwards of $1.00/share per year as a REIT and provide a VERY attractive dividend return for investors.
The play here is to make 10-15% in the short term as some probable events unfold. One would have to think that the institutional holders will NOT sit much longer and allow SFO stock to sit at such a huge discount to its true value and to allow a management team which owns 2% of the stock to continue to take large fees and not maximize the return for investors who have suffered since the day of the IPO or who have gotten involved because of the large discount to NAV.
In my eyes, the stock is worth at least $11 a share, on the true underlying value of its assets.
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