The Prudent Investor

Dropping Consideration of Artesian Resources
January 24, 2007, 8:07 am
Filed under: Water Utilities

At this point I am going to drop one more company, Artesian Resources.

Artesian Resources could well be an excellent choice, as I do know others who like this company. A positives here is its low (for a water utility) Price/Sales ratio of 2.4. You will remember that yesterday I removed Aqua America from the list because of its high P/S. Another positive would have to be its nice dividend yield of 3.4%, again I tossed the previous company for a weakness in this area.

However, when I note that the company’s stock price has just barely advanced over the previous two years, the dividend yield alone is not enough to keep me interested.

The real concern comes with two points that cannot be ignored. The first is that the revenue growth of 4% is only about half that of the industry. Since this is a growth area, I believe that the company I select needs to at least get close to performing as well as the industry as a whole.

Of grave concern is their debt/equity ratio of 1.7. This is simply too high for a company of its size, and it’s size being a market capitalization of only $115 Million gives me no comfort.

So with the removal of Artesian Resources, I have five companies remaining, namely Connecticut Water Service, SJW Corp, American States Water. Southwest Water, and Middlesex Water, as ordered by market capitalization.


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