Turning Water Into Money: Under the Radar

"Under the Radar" uncovers little-known companies worthy of investors' consideration. Check in at 5 every Monday, Wednesday and Friday morning to find out about stocks that tend to beat their bigger brethren.

BOSTON (TheStreet) -- The New Hampshire state motto is "live free or die." Those who opt for the former require hydration. Enter: Merrimack-based Pennichuck(PNNW)), a water utility with an impressive record of growth. Pennichuck has been hustling aqua in the Granite State since 1852.

This small-cap boasts attractive digits: a three-year compounded annual growth rate of 10% for revenue and 223% for earnings. Although Pennichuck succumbed to a net loss in the first quarter, its stock is worth consideration for income-oriented investors.

Second-quarter revenue increased 6% to $8.4 million, but net income dropped 4% to $700,000 and earnings per share declined 5% to 18 cents. The gross margin improved from 38% to 39% and the operating margin stretched from 26% to 27%, a sign of resilient pricing.

A rate increase that was recently approved by the New Hampshire State Public Utilities Commission will increase annual revenue by $5 million. And Pennichuck just secured a $2.1 million federal-stimulus award to upgrade its equipment and infrastructure.

But there are some complex legal issues dogging this company and testing the limits of the state motto. The city of Nashua is attempting to coerce a sale of Pennichuck's assets based on "eminent domain," the government's right to seize private property for public purpose.

A ballot initiative that passed in 2003 allows the city to pursue control of its own water supply. But, as is often the case, the outcome of the initiative might not accurately reflect majority opinion due to weak voter turnout.