Is It Time To Reassess California Water Service Group (CWT) After Recent Price Strength?
- If you are wondering whether California Water Service Group is fairly priced or offering value at its current level, this article will walk through what the numbers actually say about the stock.
- The share price closed at US$45.76, with returns of 3.6% over the last 7 days, 0.2% over 30 days, 6.5% year to date, 3.4% over 1 year, and longer term returns of a 17.9% decline over 3 years and a 9.0% decline over 5 years.
- Recent price moves sit against a backdrop of ongoing interest in essential water utilities, as investors weigh regulated earnings profiles and capital needs for infrastructure investment. While day to day headlines may be limited, sentiment around defensive, income oriented utilities often shifts as interest rate expectations and broader market risk appetite change.
- Our Simply Wall St valuation model currently gives California Water Service Group a valuation score of 1 out of 6. We will look at what traditional approaches like P/E, P/B and discounted cash flow suggest, then finish with a more holistic way to think about value that brings the different checks together.
California Water Service Group scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: California Water Service Group Dividend Discount Model (DDM) Analysis
The Dividend Discount Model estimates what a stock could be worth by projecting future dividends, applying an assumed long term growth rate, then discounting those cash flows back to today.
For California Water Service Group, the model uses an annual dividend per share of US$1.41, a return on equity of 8.15% and a payout ratio of about 53%. The implied long term dividend growth rate is 3.41%, capped from a higher calculated rate of 3.81%, with an expected growth input of about 3.81%. Together, these inputs are designed to reflect a dividend stream that grows steadily while staying supported by earnings.
Given these assumptions, the DDM output suggests an intrinsic value of roughly US$39.61 per share. The recent share price is US$45.76. Under this model, the stock is about 15.5% overvalued, so the current price sits above this dividend based estimate of value.
Result: OVERVALUED
Our Dividend Discount Model (DDM) analysis suggests California Water Service Group may be overvalued by 15.5%. Discover 56 high quality undervalued stocks or create your own screener to find better value opportunities.
Approach 2: California Water Service Group Price vs Earnings
For a profitable business like California Water Service Group, the P/E ratio is a useful way to relate what you pay per share to the earnings the company generates. Investors typically accept a higher P/E when they expect stronger growth or see lower risk, and a lower P/E when growth expectations are more modest or risks are higher.
California Water Service Group currently trades on a P/E of 20.0x. That sits above the Water Utilities industry average P/E of about 16.8x, but below the peer group average of 24.1x. On the surface, that suggests the stock is priced higher than the broader industry, yet not as highly as some peers.
Simply Wall St’s Fair Ratio for California Water Service Group is 17.6x. This proprietary figure estimates what a more tailored P/E might look like after considering factors such as the company’s earnings growth profile, profit margins, risk characteristics, industry and market cap. Because it blends these elements, the Fair Ratio can often give a clearer signal than a simple comparison with peers or the industry alone. Here, the current 20.0x P/E sits above the 17.6x Fair Ratio, which points to the shares looking overvalued on this metric.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your California Water Service Group Narrative
Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives, where you and other investors link a clear story about California Water Service Group to explicit forecasts for revenue, earnings, margins and a fair value estimate. You can then compare that fair value to the current price to decide whether the stock looks attractive or expensive. The narrative updates automatically as new items such as analyst targets, the US$52.00 Fair Value estimate or dividend announcements come in. One investor might build a more optimistic California Water Service Group view around assumptions like 4.56% revenue growth, a 14.92% margin and a future P/E of 21.97x that support a fair value above the current price. Another investor might focus on risks such as regulatory delays, PFAS costs and water usage limits to arrive at a more cautious story and a lower fair value.
Do you think there's more to the story for California Water Service Group? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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