Is SunLink Health Systems, Inc. (NYSEMKT:SSY) Undervalued?

Atlanta healthcare company SunLink Health Systems, Inc. (NYSEMKT:SSY) is up close to 10% mid session US on Friday, and near 30% for July as a whole, despite no real news for a couple of months. Heavy volume kicked off the gains at the start of July, so there's a chance someone, somewhere knows something we don't. Whatever that something is, however, it's drawn our attention to the company, and maybe that's a good thing.At its current market capitalization, SunLink looks as though it could be starkly undervalued, and might be worth a position ahead of a pending upside revaluation.For those not familiar with the company, it's a sixty year old healthcare facility and pharma services entity, headquartered in Georgia. It operates three acute care hospitals for a total of 183 licensed beds, two nursing homes for a further 166 beds, in Georgia and Mississippi, and a hospital building in Alabama. It's currently trading at a market cap of just $6.46 million, despite pulling in more than $91 million in revenues for the last three years, with gross profit for '13, '14 and '15 coming in at $58 million, $57 million and $58 million respectively.It must be losing money, right? That can be the only reason it's valued at one tenth it's gross profit. No. Last year the company recorded an (albeit small) bottom line of $245K net income. Debt, then? Again, not really. The company's got about $11 million accounts payable listed as liabilities on its balance sheet, and about $11.5 million combined short and long term debt. Cash on hand was just shy of $4 million as of March 31, 2016. It's got more than $21 million property and plant, for net tangible assets of more than $17.5 million.So what can the issue be?Well, there's only one real answer, and that's a current business shift. To get a little more specific on our description of SunLink's operations, it has traditionally focused on rural facilities in both its hospital and its pharma operations. According to its latest 10-Q, it's getting difficult to operate profitably in the rural healthcare segment because more and more people are shifting to urban facilities. It's also difficult to hire and retain quality physicians, based on location limitations.Apparently, this problem has intensified as late, and the latest numbers reflect this trend. For the last three reported quarters, to Sep 2015, to Dec 2015 and to March 2016, the company recorded a net loss of $1.6 million, $9.3 million and $1.8 million. Revenues have been slowly declining across the period, in question, coming in at $20.4 million, $20.2 million and $19.9 million.This is starting to make a little more sense. But still, this author believes there's a disparity between price and value.SunLink is in a period of transition. It's trying to trim its operations to drop the badly performing assets and build on the top performers, meaning the recent dip in revenues, and the impact this has had on its quarterly bottom line, should pass:

"SunLink’s business strategy is to focus its efforts on the sale or disposition of its underperforming or non-strategic assets and improving internal operations of its existing healthcare facilities and its pharmacy business."

But it's not all trimming:

" The Company also is considering, subject to available funds, potential healthcare facility upgrades, acquisitions and development, including nursing, long-term care and assisted living homes."

As this cost cutting exercise comes to fruition, and if post-cuts it can pick up some profitable assets with the capital raised, there should be an upside revaluation in the company's market capitalization. Nothing is certain, of course, but we're going to watch this one closely as things develop.Stick with us for updates on SSY by subscribing to our newsletter below!Disclosure: We have no position in SSY and have not been compensated for this article.