Cadiz Inc (NASDAQ:CDZI), a $327.21M small-cap, is a utility company operating in an industry whose performance is now more driven by the businesses’ ability to address emerging problems such as cybersecurity threats and innovative competitors. Utilities analysts are forecasting for the entire industry, a somewhat weaker growth of 5.55% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Cadiz is lagging or leading its competitors in the industry. See our latest analysis for Cadiz
What’s the catalyst for Cadiz’s sector growth?
Aging asset performance with increased expectations on reliability, and new entrants and disruptive technology, are just some of the few key disruption in utilities. Over the past year, the industry saw growth of 6.90%, though still underperforming the wider US stock market. Cadiz lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Cadiz may be trading cheaper than its peers.
Is Cadiz and the sector relatively cheap?
The water utilities sector’s PE is currently hovering around 16.8x, relatively similar to the rest of the US stock market PE of 20.1x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.30% compared to the market’s 10.43%, potentially illustrative of past tailwinds. Since Cadiz’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Cadiz’s value is to assume the stock should be relatively in-line with its industry.
Cadiz has been an utilities industry laggard in the past year. If Cadiz has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its utilities peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Cadiz’s fundamentals in order to build a holistic investment thesis.
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Historical Track Record: What has CDZI’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Cadiz? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.