The York Water Company (NASDAQ:YORW), on the other hand, is down -7.85% year to date as of 11/17/2017. It currently trades at $35.20 and has returned 3.53% during the past week.
Cadiz Inc. (NASDAQ:CDZI) and The York Water Company (NASDAQ:YORW) are the two most active stocks in the Water Utilities industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, YORW is expected to grow at a 4.90% annual rate. All else equal, YORW’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 58.11% for The York Water Company (YORW). CDZI’s ROI is -18.90% while YORW has a ROI of 8.80%. The interpretation is that YORW’s business generates a higher return on investment than CDZI’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. CDZI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, YORW’s free cash flow per share was -0.21. On a percent-of-sales basis, CDZI’s free cash flow was -0.83% while YORW converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, YORW is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CDZI has a current ratio of 1.80 compared to 0.90 for YORW. This means that CDZI can more easily cover its most immediate liabilities over the next twelve months.
CDZI trades at a forward P/E of 327.50, and a P/S of 746.70, compared to a forward P/E of 35.20, a P/B of 3.85, and a P/S of 9.40 for YORW. CDZI is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CDZI is currently priced at a -25.14% to its one-year price target of 17.50. Comparatively, YORW is 30.37% relative to its price target of 27.00. This suggests that CDZI is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for CDZI and 4.00 for YORW, which implies that analysts are more bullish on the outlook for YORW.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CDZI has a beta of 0.36 and YORW’s beta is 0.58. CDZI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CDZI has a short ratio of 16.65 compared to a short interest of 6.88 for YORW. This implies that the market is currently less bearish on the outlook for YORW.
The York Water Company (NASDAQ:YORW) beats Cadiz Inc. (NASDAQ:CDZI) on a total of 7 of the 14 factors compared between the two stocks. YORW has higher cash flow per share, is more profitable, generates a higher return on investment and has a higher cash conversion rate. In terms of valuation, YORW is the cheaper of the two stocks on an earnings and sales basis, Finally, YORW has better sentiment signals based on short interest.