The stock of The York Water Co (NAS:YORW, 30-year Financials) appears to be 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 $47.57 per share and the market cap of $621.9 million, The York Water Co stock shows every sign of being fairly valued. GF Value for The York Water Co is shown in the chart below.
Because The York Water Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 3% over the past five years.
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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. The York Water Co has a cash-to-debt ratio of 0.00, which which ranks in the bottom 10% of the companies in the industry of Utilities - Regulated. The overall financial strength of The York Water Co is 3 out of 10, which indicates that the financial strength of The York Water Co is poor. This is the debt and cash of The York Water Co over the past years:
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. The York Water Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $54.1 million and earnings of $1.24 a share. Its operating margin of 44.71% better than 95% of the companies in the industry of Utilities - Regulated. Overall, GuruFocus ranks The York Water Co’s profitability as fair. This is the revenue and net income of The York Water Co over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. The York Water Co’s 3-year average revenue growth rate is in the middle range of the companies in the industry of Utilities - Regulated. The York Water Co’s 3-year average EBITDA growth rate is 2%, which ranks in the middle range of the companies in the industry of Utilities - Regulated.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, The York Water Co’s return on invested capital is 5.69, and its cost of capital is 2.73. The historical ROIC vs WACC comparison of The York Water Co is shown below:
In summary, the stock of The York Water Co (NAS:YORW, 30-year Financials) gives every indication of being 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 The York Water Co stock, you can check out its 30-year Financials here.
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