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American States Water Company’s shares have become undervalued as a result of negative earnings results in the past. This undervaluation does not take into account the favorable Californian regulatory environment that could help move the company along. Investors looking for a stable, long-term investment opportunity with the potential for capital appreciation should consider picking up the company’s shares. As investors know, utilities companies are some of the most stable companies that investors can invest in. These companies are known for their strong, stable balance sheets that regularly doll out steady income in the form of dividends. Not many investors would consider utilities companies as investments for risk-loving investors, given the fact that demand in the utilities industry is so inelastic. This inelasticity stems from the fact that consumers will purchase utilities services no matter what happens to the general economy; after all, no one in their right mind would save money by cutting off their water or heat. But small cap utilities companies can offer investors looking for something else a chance at both capital appreciation and steady income. Given the nature of small cap companies, small cap utilities companies give investors the chance to outperform the general market without too much risk involved. This is not to say that company-specific risk can still play a role in increasing the overall risk in a portfolio, but industry-wise, the risk in that aspect is rather low. One small cap utilities company that investors should consider taking a look into is American States Water Company, Inc. (NYSE: AWR ), a pure play water company that mainly serves customers in California by providing water and electric utilities services. The company operates through two main businesses: Golden State Water company and American States Utility Services, and each of these business segments has their own individual subsidiaries. Golden State Water company contains Golden State Water, a regulated water utility company, and Bear Valley Electric, a regulated electric utility company. Furthermore, American States Utility Services contains a number of subsidiaries, including: Fort Bliss Water Services company, Old Dominion Utility Services, Old North Utility Services, Palmetto State Utility Services, and Terrapin Utility Services. All of these subsidiaries enable a strong amount of diversification within the company’s sales mix, which enable investors to share in that diversification indirectly through an investment in the company’s shares. Moving on to the company’s stock chart, investors can see the outstanding returns that the company has generated for investors. Funds invested in the company on the onset of calendar year 2011 would have generated a return on investment of more than 150%, not bad for a utilities company. While the company has had a great turn in the years 2011 throughout 2014, the company’s shares recently began slowing down in value growth. That, in part, is due to macroeconomic events out of the company’s control, and thus, investors should not discount the stock due to a slowdown in value growth throughout 2015. In regards to a technical perspective, the 50-day moving average has been basically above the 200-day moving average for the most part, with the 50-day moving average occasionally touching the 200-day moving average. The two technical indicators’ spread have been widening recently, which could signal near-term upside. (click to enlarge) Source: Stockcharts.com From a fundamental standpoint, long-term investors have much to feast upon. The California water utilities regulation has been particularly favorable in the sense that regulators are taking action to make processes more streamlined and adjust the way that water usage is measured. Through this favorable regulatory environment, the company can once again augment its customer expansion and increase top-line growth. As a result of numerous earnings calls in the past that yielded negative earnings growth, investors have discounted the stocks’ investment potential, but these investors fail to see the long-term picture. As such, shares of the company have become undervalued and are ripe for pick up by value investors with that long-term perspective in mind. Growth in EPS has been unsteady, but that could change with this favorable regulatory environment as the company streamlines its operations and widens its margins, boosting EPS. While the utilities industry is indeed a heavily regulated industry, and while industries that are heavily regulated are subject to the whims of the government, in this case, that’s a good thing. The company will have a helping hand prop up and reignite its growth engines. Investors looking for a stable, long-term investment that has the potential for capital appreciation should consider investing in American States Water Company. Scalper1 News
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