The stock of SJW Group (NYSE:SJW, 30-year Financials) is believed 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 $63.42 per share and the market cap of $1.9 billion, SJW Group stock gives every indication of being fairly valued. GF Value for SJW Group is shown in the chart below.
Because SJW Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.5% over the past three years and is estimated to grow 4.45% annually over the next three to five years.
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. SJW Group has a cash-to-debt ratio of 0.01, which which ranks in the bottom 10% of the companies in the industry of Utilities – Regulated. The overall financial strength of SJW Group is 3 out of 10, which indicates that the financial strength of SJW Group is poor. This is the debt and cash of SJW Group over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. SJW Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $563.6 million and earnings of $2.15 a share. Its operating margin is 20.46%, which ranks better than 66% of the companies in the industry of Utilities – Regulated. Overall, the profitability of SJW Group is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of SJW Group over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of SJW Group is 1.5%, which ranks in the middle range of the companies in the industry of Utilities – Regulated. The 3-year average EBITDA growth rate is -2.9%, which ranks worse than 74% 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, SJW Group’s return on invested capital is 3.11, and its cost of capital is 3.61. The historical ROIC vs WACC comparison of SJW Group is shown below:
In conclusion, the stock of SJW Group (NYSE:SJW, 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 worse than 74% of the companies in the industry of Utilities – Regulated. To learn more about SJW Group stock, you can check out its 30-year Financials here.
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