The utility sector is a typically unheard one.
With only one company, Aqua America Inc, over one billion in terms of market capitalization, there may be some risk involved in purchasing some of these short-cap equities.
Nevertheless, along with the likes of California Water Service Group and SJW Corp, one company, American States Water Co (AWR), has the solid fundamental base and business strategy to produce capital gains for your portfolio.
Relative to the information provided by Reuters, American States Water "is the parent company of Golden State Water Company (GSWC), American States Utility Services, Inc.
(ASUS) and its subsidiaries, and Chaparral City Water Company (CCWC).
" GSWC "is a public utility engaged principally in the purchase, production, distribution and sale of water in California.
" As illustrated, this company controls most of the business life cycle, allowing for a strong vertical control over its entire process.
The one area which really stands out for me is its presence in California.
With raging wildfires continuing to burn acres of land out there in the West Coast, along with meteorologists' predictions that 2007 will be the warmest year on record, water is going to be highly desired for the Golden State, and American States Water will be a huge component of trying to fulfill this need.
In addition, the other break offs of this company such as American States Utility focuses on other dry states such as Arizona.
And, because unusually high temperatures and drought conditions are not going to be restricted to only California, there is going to be high potential for these spin-offs to perform quite well in the next year.
Furthermore, because AWR has grown share price wise in linear fashion since its IPO days in the early 1990s, further business will mean further growth opportunities and a continuation of a higher share price.
Now, while the foreseeable future looks very promising for AWR, the water situation will not be exclusive to only California and Arizona, but will have impacts across the entire United States.
As a result, other water utility companies such as SJW and Aqua America will also benefit from the upcoming events.
Nevertheless, what separate these companies from AWR are the fundamentals.
Examining revenue, AWR has had increasing gross profit margins over the past three fiscal years.
This has lead to a revenue per share of 15.
86 according to Capital IQ which handily beats competitors Aqua America's 4.
08 and SJW's 10.
36.
Furthermore, one of the most important indicators I look at, quarterly revenue growth, year over year, AWR has posted near 21% quarterly growth.
This astonishing number easily beats out Aqua America's 11.
30, SJW's 2.
20, and California Water Service's 3.
60%.
Looking more down the line, this revenue number quickly changes to a net income level related to earnings which AWR seems to have a stronghold as well.
Its forward P/E ratio of 24.
5 easily beats out the industry's 28.
3 and also beats out Aqua Water's 26.
3 and SJW's 26.
2 (SJW's forward multiple is actually up from its trailing ratio).
This undervaluation can also be found with AWR's price to sales multiple of 2.
5, enterprise value to revenue number of 3.
6, and enterprise value to EBIDTA figure of 11.
53.
While these numbers may seem a bit high relative to the general market, comparing them to the industry, Aqua Water's respective numbers are only 5.
69, 7.
67, and 14.
40, SJW's respective figures are 3.
85, 4.
78, and 13.
28, and California Water Service's has a respective 2.
51, 3.
22, and 12.
49.
With the industry's price to sales multiple much higher a 3.
4, there is some clear indication that the share price for AWR is too low for the given fundamentals.
The one area where there may be a bit of concern related to this company can be found to its ROE.
With only a number close to 8.
5%, a bit below the industry's average of 9.
3%, it may seem that the company is not using the shares bought most efficiently.
In addition, there also may be some concern regarding the below industry ROI of 2.
8% and the same lagging ROA indicator of 2.
55%.
Nevertheless, AWR's main competitor California Water Service only as a ROE close to 7.
6%, and the market leader of this industry, Aqua Water's ROE is only slightly higher at 10.
6%.
If AWR continues to see favorable weather patterns and continues to find growing sales year over year, Mr.
Floyd Wicks and his near 570 employees should have no trouble continuing to be one of the main leaders, share price growth wise, in this industry.
In addition, looking a bit more obscure but still relevant figures, AWR may have a bit of a liability to asset debate, with a current ratio of 0.
75, but the long term debt to equity ratio of about 1, still illustrates that this company can take on debt, produce quite well, and still be considered undervalued.
While it's true that some of the other companies in this industry have more solvency to their respective system, with a near positive linear growth pattern over the past 17 years, there should be not much reason to doubt this company--especially considering the industry it's in.
Therefore, with the solid business plan and secure fundamental attributes, there should be no reason to not consider committing some capital into this company.
With a beta close to one, and a solid reason to believe the benchmark, the S&P 500, will do quite well in 2007, even with a current share price above the 50 and 200 day SMA, AWR is a solid, safe company to be involved with.
With only one company, Aqua America Inc, over one billion in terms of market capitalization, there may be some risk involved in purchasing some of these short-cap equities.
Nevertheless, along with the likes of California Water Service Group and SJW Corp, one company, American States Water Co (AWR), has the solid fundamental base and business strategy to produce capital gains for your portfolio.
Relative to the information provided by Reuters, American States Water "is the parent company of Golden State Water Company (GSWC), American States Utility Services, Inc.
(ASUS) and its subsidiaries, and Chaparral City Water Company (CCWC).
" GSWC "is a public utility engaged principally in the purchase, production, distribution and sale of water in California.
" As illustrated, this company controls most of the business life cycle, allowing for a strong vertical control over its entire process.
The one area which really stands out for me is its presence in California.
With raging wildfires continuing to burn acres of land out there in the West Coast, along with meteorologists' predictions that 2007 will be the warmest year on record, water is going to be highly desired for the Golden State, and American States Water will be a huge component of trying to fulfill this need.
In addition, the other break offs of this company such as American States Utility focuses on other dry states such as Arizona.
And, because unusually high temperatures and drought conditions are not going to be restricted to only California, there is going to be high potential for these spin-offs to perform quite well in the next year.
Furthermore, because AWR has grown share price wise in linear fashion since its IPO days in the early 1990s, further business will mean further growth opportunities and a continuation of a higher share price.
Now, while the foreseeable future looks very promising for AWR, the water situation will not be exclusive to only California and Arizona, but will have impacts across the entire United States.
As a result, other water utility companies such as SJW and Aqua America will also benefit from the upcoming events.
Nevertheless, what separate these companies from AWR are the fundamentals.
Examining revenue, AWR has had increasing gross profit margins over the past three fiscal years.
This has lead to a revenue per share of 15.
86 according to Capital IQ which handily beats competitors Aqua America's 4.
08 and SJW's 10.
36.
Furthermore, one of the most important indicators I look at, quarterly revenue growth, year over year, AWR has posted near 21% quarterly growth.
This astonishing number easily beats out Aqua America's 11.
30, SJW's 2.
20, and California Water Service's 3.
60%.
Looking more down the line, this revenue number quickly changes to a net income level related to earnings which AWR seems to have a stronghold as well.
Its forward P/E ratio of 24.
5 easily beats out the industry's 28.
3 and also beats out Aqua Water's 26.
3 and SJW's 26.
2 (SJW's forward multiple is actually up from its trailing ratio).
This undervaluation can also be found with AWR's price to sales multiple of 2.
5, enterprise value to revenue number of 3.
6, and enterprise value to EBIDTA figure of 11.
53.
While these numbers may seem a bit high relative to the general market, comparing them to the industry, Aqua Water's respective numbers are only 5.
69, 7.
67, and 14.
40, SJW's respective figures are 3.
85, 4.
78, and 13.
28, and California Water Service's has a respective 2.
51, 3.
22, and 12.
49.
With the industry's price to sales multiple much higher a 3.
4, there is some clear indication that the share price for AWR is too low for the given fundamentals.
The one area where there may be a bit of concern related to this company can be found to its ROE.
With only a number close to 8.
5%, a bit below the industry's average of 9.
3%, it may seem that the company is not using the shares bought most efficiently.
In addition, there also may be some concern regarding the below industry ROI of 2.
8% and the same lagging ROA indicator of 2.
55%.
Nevertheless, AWR's main competitor California Water Service only as a ROE close to 7.
6%, and the market leader of this industry, Aqua Water's ROE is only slightly higher at 10.
6%.
If AWR continues to see favorable weather patterns and continues to find growing sales year over year, Mr.
Floyd Wicks and his near 570 employees should have no trouble continuing to be one of the main leaders, share price growth wise, in this industry.
In addition, looking a bit more obscure but still relevant figures, AWR may have a bit of a liability to asset debate, with a current ratio of 0.
75, but the long term debt to equity ratio of about 1, still illustrates that this company can take on debt, produce quite well, and still be considered undervalued.
While it's true that some of the other companies in this industry have more solvency to their respective system, with a near positive linear growth pattern over the past 17 years, there should be not much reason to doubt this company--especially considering the industry it's in.
Therefore, with the solid business plan and secure fundamental attributes, there should be no reason to not consider committing some capital into this company.
With a beta close to one, and a solid reason to believe the benchmark, the S&P 500, will do quite well in 2007, even with a current share price above the 50 and 200 day SMA, AWR is a solid, safe company to be involved with.