We've downgraded American States Water (AWR - Get Report), which engages in water and electric service utility operations for residential and commercial customers in the United States, from buy to hold. The primary factors that have impacted our rating are mixed. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year, generally poor debt management and disappointing return on equity.
The revenue growth greatly exceeded the industry average of 22.9%. Since the same quarter one year prior, revenues rose by 12.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
Net operating cash flow has increased to $15.69 million or 32.09% when compared to the same quarter last year. In addition, American States Water has also vastly surpassed the industry average cash flow growth rate of -57.20%.
43.80% is the gross profit margin for American States Water which we consider to be strong. Regardless of American States Water's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.30% trails the industry average.American States Water's share price is down 17.17% over the past year. We believe this reflects several factors -- the market's overall decline (which was actually deeper), the sharp decline in the company's earnings per share, and (c) other weaknesses. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock. The debt-to-equity ratio of 1.07 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.40, which clearly demonstrates the inability to cover short-term cash needs. All ratings changes generated on Dec. 30 are listed below.