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Is American Water (NYSE:AWK) way too risky for millennials?
 | By Rifka Kats | Macroaxis Story |
It feels like American Water will continue to recover much faster as its share price surged up 1.65% today. American Water Works's current daily volatility is 1.26 percent, with a beta of -0.19 and an alpha of 0.08 over DOW. As many millenniums are trying to avoid utilities, it makes sense to examine American Water Works a little further and try to understand its current market patterns. We will evaluate why we are still optimistic in anticipation of a recovery.
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Reviewed by Gabriel Shpitalnik
American Water Works has roughly 583 M in cash with 1.43 B of positive cash flow from operations. This results in cash-per-share (CPS) ratio of 3.22. This firm has 10.68 B in debt with debt to equity (D/E) ratio of 1.68, which is OK given its current industry classification. The company has a current ratio of 0.88, suggesting that it has not enough short term capital to pay financial commitments when the payables are due.
Please note, it is not enough to conduct a financial or market analysis of a single entity such as American Water. Your research has to be compared to or analyzed against American Water's peers to derive any actionable benefits. When done correctly, American Water's competitive analysis will give you plenty of quantitative and qualitative data to validate your investment decisions or develop an entirely new strategy toward taking a position in American Water Works.
Investing in American Water, just like investing in any other equity instrument, is characterized by a strong risk-return correlation. High risks mean high returns and low risk means lower expected returns. Risk management is the act of identifying and assessing the potential risk and developing strategies to minimize these risks and earn maximum possible profits while holding American Water along with other instruments in the same portfolio. Using conventional technical analysis and fundamental analysis to select individual securities into a portfolio complements risk management and adds value to overall investors' investing strategies.
Sophisticated investors, who have witnessed many market ups and downs, anticipate that the market will even out over time. This tendency of American Water's price to converge to an average value over time is called mean reversion. However, historically, high market prices usually discourage investors that believe in mean reversion to invest, while low prices are viewed as an opportunity to buy.
How important is American Water's Liquidity
American Water financial leverage refers to using borrowed capital as a funding source to finance American Water Works ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. American Water financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to American Water's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of American Water's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between American Water's total debt and its cash.
American Water Gross Profit
American Water Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing American Water previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show American Water Gross Profit growth over the last 10 years. Please check American Water's gross profit and other fundamental indicators for more details.
American Water Correlation with Peers
Investors in American can reduce exposure to individual asset risk by holding a diversified portfolio of assets in addition to a long position in American Water Works. Diversification will allow for the same portfolio return with reduced risk. The correlation table of American Water and its peers is a two-dimensional matrix that shows the correlation coefficient between pairs of securities American is related in some way. The cells in the table are color-coded to highlight significantly positive and negative relationships. Each cell shows the correlation between one pair of equities and can be used to run pair trading strategies or create efficient portfolios with your current brokerage. Please check volatility of American for more details
Another Outlook On American Water
We consider American Water very steady. American Water Works secures Sharpe Ratio (or Efficiency) of 0.0349, which signifies that the company had 0.0349% of return per unit of standard deviation over the last month. Our philosophy in foreseeing the volatility of a stock is to use all available market data together with stock specific technical indicators that cannot be diversified away. We have found twenty-one technical indicators for American Water Works, which you can use to evaluate future volatility of the firm. Please confirm American Water Works risk adjusted performance of 0.0762, and Mean Deviation of 0.9278 to double-check if the risk estimate we provide is consistent with the expected return of 0.0441%.
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