California Water Service Group Stock Appears To Be Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of California Water Service Group (NYSE:CWT, 30-year Financials) gives every indication of being fairly valued, 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 $57.5 per share and the market cap of $2.9 billion, California Water Service Group stock appears to be fairly valued. GF Value for California Water Service Group is shown in the chart below.


California Water Service Group Stock Appears To Be Fairly Valued
California Water Service Group Stock Appears To Be Fairly Valued

Because California Water Service Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.6% over the past three years and is estimated to grow 4.59% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. California Water Service Group has a cash-to-debt ratio of 0.04, which which ranks worse than 84% of the companies in the industry of Utilities - Regulated. The overall financial strength of California Water Service Group is 4 out of 10, which indicates that the financial strength of California Water Service Group is poor. This is the debt and cash of California Water Service Group over the past years:

California Water Service Group Stock Appears To Be Fairly Valued
California Water Service Group Stock Appears To Be Fairly Valued

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. California Water Service Group has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $794.3 million and earnings of $1.94 a share. Its operating margin of 18.65% in the middle range of the companies in the industry of Utilities - Regulated. Overall, GuruFocus ranks California Water Service Group's profitability as fair. This is the revenue and net income of California Water Service Group over the past years:

California Water Service Group Stock Appears To Be Fairly Valued
California Water Service Group Stock Appears To Be Fairly Valued

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of California Water Service Group is 4.6%, which ranks in the middle range of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth is 3.3%, which ranks in the middle range of the companies in the industry of Utilities - Regulated.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, California Water Service Group's ROIC is 3.85 while its WACC came in at 2.25. The historical ROIC vs WACC comparison of California Water Service Group is shown below:

California Water Service Group Stock Appears To Be Fairly Valued
California Water Service Group Stock Appears To Be Fairly Valued

Overall, the stock of California Water Service Group (NYSE:CWT, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Utilities - Regulated. To learn more about California Water Service Group stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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