As water scarcity intensifies, the demand for water infrastructure, treatment, and management services is rising, especially in drought-affected regions like the Midwest. This trend drives growth in water utility and technology companies, presenting strong investment opportunities.

Hence, investors may consider watching fundamentally sound water stocks like The York Water Company (YORW), California Water Service Group (CWT), and Consolidated Water Co. Ltd. (CWCO).

The rising water scarcity is increasing the demand for infrastructure, purification, desalination, and waste management services. Businesses offering advanced filtration systems and smart water management technologies are poised for growth. The global water treatment systems market is projected to grow at a CAGR of 8.1% from 2024 to 2030.

Water’s essential role makes companies in its supply, distribution, and treatment recession-resistant. Heavy investment in water infrastructure, from pipelines to wastewater treatment, is driving growth, while sustainability trends enhance their appeal to investors. The water distribution system market is expected to reach $223.94 billion by 2031, growing at a 7.2% CAGR from 2024 to 2031.

Considering these conducive trends, let’s analyze the fundamental aspects of the three Water picks, beginning with the third choice.

Stock #3: The York Water Company (YORW)

YORW impounds, purifies, and distributes drinking water. It owns and operates three wastewater collection systems, ten wastewater collection and treatment systems, and two reservoirs, including Lake Williams and Lake Redman, which hold approximately 2.2 billion gallons of water.

YORW’s trailing-12-month gross profit margin of 74.31% is 65.3% higher than the industry average of 44.95%. Likewise, its trailing-12-month EBIT margin and EBITDA margin of 39.05% and 55.79% are 83.6% and 52.4% higher than the industry averages of 21.26% and 36.62%, respectively.

For the six months ended June 30, 2024, YORW’s operating revenues increased 6.5% from the prior year to $36.38 million. The company’s net income and earnings per common share were $9.32 million and $0.65, respectively. Additionally, its dividends declared per common share rose 4% year-over-year to $0.42.

Analysts expect YORW’s revenue for the quarter ending September 30, 2024, to increase 6.6% year-over-year to $20 million. Its EPS for the quarter ending March 31, 2025, is expected to grow 13.3% year-over-year to $0.34. The company surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 5.7%, closing the last trading session at $37.43.

YORW’s POWR Ratings reflect its bright prospects. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

YORW has a B grade for Stability and Sentiment. Within the Water industry, it is ranked #5 out of 12 stocks. Click here for the additional POWR Ratings of YORW (Growth, Value, Momentum, and Quality).

Stock #2: California Water Service Group (CWT)

CWT and its subsidiaries provide water utility and related services in California, Washington, New Mexico, Hawaii, and Texas. The company is involved in the production, purchase, storage, treatment, testing, distribution, and sale of water for domestic, industrial, public, and irrigation uses, as well as for fire protection services.

In terms of the trailing-12-month net income margin, CWT’s 17.78% is 35.9% higher than the 13.08% industry average. Similarly, its 24.07% trailing-12-month EBIT margin is 13.2% higher than the 21.26% industry average. Moreover, its 43.03% trailing-12-month Capex / Sales is 26.7% higher than the industry average of 33.97%.

CWT’s operating revenue for the second quarter ended June 30, 2024, increased 25.9% year-over-year to $244.30 million. Its net operating income grew 202% from the year-ago value to $48.17 million. Likewise, the company’s net income attributable and EPS rose by 324.4% and 311.8% over the prior-year quarter to $40.55 million and $0.70, respectively.

Street expects CWT’s EPS and revenue for the quarter ending September 30, 2024, to increase 70.8% and 13.5% year-over-year to $1.03 and $289.40 million, respectively. Over the past six months, the stock has gained 15.2%, closing the last trading session at $52.63.

CWT’s positive outlook is reflected in its POWR Ratings. It has a B grade for Growth, Value, and Sentiment. Within the same industry, it is ranked #2. Beyond what we stated above, we also have given CWT grades for Momentum, Stability, and Quality. Get all the CWT ratings here.

Stock #1: Consolidated Water Co. Ltd. (CWCO)

Headquartered in Grand Cayman, Cayman Islands, CWCO and its subsidiaries design, construct, manage, and operate water production and treatment plants primarily in the Cayman Islands, the Bahamas, and the United States. The company operates through four segments: Retail, Bulk, Services, and Manufacturing.

In terms of the trailing-12-month Return on Common Equity, CWCO’s 16.04% is 67% higher than the 9.61% industry average. Likewise, its 17.34% trailing-12-month Return on Total Assets is 536% higher than the 2.73% industry average. In addition, its 0.80x trailing-12-month asset turnover ratio is 266.7% higher than the 0.22x industry average.

In the fiscal second quarter that ended on June 30, 2024, CWCO’s total revenue was $32.48 million. The company reported a gross profit of $11.62 million. In addition, its net income attributable to CWCO stockholders came in at $15.85 million, up 116.4% year-over-year, while earnings per share grew 112.8% from the prior-year value to $0.40.

For fiscal 2025 CWCO’s EPS and revenue are expected to increase 15.9% and 10.1% year-over-year to $1.46 and $151.30 million, respectively. CWCO surpassed the EPS estimates in each of the trailing four quarters. Over the past three months, the stock has declined 2.4% to close the last trading session at $24.54.

CWCO’s strong fundamentals are reflected in its POWR Ratings. It is ranked first in the Water industry. It has an A grade for Quality and a B for Momentum and Sentiment. Click here to see CWCO’s Growth, Value, and Stability ratings.

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CWT shares were trading at $52.97 per share on Thursday afternoon, up $0.34 (+0.65%). Year-to-date, CWT has gained 3.86%, versus a 21.57% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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