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Consolidated Water Co. Ltd. (NASDAQ:CWCO), which is in the water utilities business, and is based in Cayman Islands, received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to $13.74 at one point, and dropping to the lows of $12.47. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Consolidated Water's current trading price of $12.49 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Consolidated Water’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Consolidated Water?
Great news for investors – Consolidated Water is still trading at a fairly cheap price. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Consolidated Water’s ratio of 18.38x is below its peer average of 33.78x, which suggests the stock is undervalued compared to the Water Utilities industry. Another thing to keep in mind is that Consolidated Water’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What kind of growth will Consolidated Water generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -0.6% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Consolidated Water. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although CWCO is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to CWCO, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on CWCO for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Consolidated Water. You can find everything you need to know about Consolidated Water in the latest infographic research report. If you are no longer interested in Consolidated Water, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.