Is American Water Works a Safe Investment?

PHOTO CREDIT: American Water Works

OVERVIEW

American Water Works Company Incorporation is a water utility company based in the United States. They provide their customers with water and wastewater services as well as the products and maintenance related to keeping their operations efficient. They operate 80 surface water, 520 groundwater, and 140 wastewater treatment plants. They also operate 1000 groundwater wells and many other related infrastructures.

Why You Should?

  1. American Water Works is an extremely safe investment as the services that they offer are essential to maintain a high quality of life regardless of the economic times. People will need water and wastewater services to survive. This makes the company an extremely safe investment as it is a utility that people around the country rely on.
  2. American Water Works operates thousands of facilities that service 15 million people in 46 states. Cities contract with the company to offer services to its citizens. The company serves both individual households as well as commercial customers like large companies, factories, and local, state, and federal government installations like military bases, fire stations, schools, and many others.
  3. American Water Works is continuing to expand its operations by getting more contracts with cities to serve their populations as well as acquiring several smaller companies as well as government programs. This slow but steady growth will benefit the company’s future goals and will benefit the shareholders of the company.
  4. As people stay at home during the pandemic, water usage for individual customers has skyrocketed. American Water Works has been able to capitalize on this demand and has seen a rise in revenues and profits despite this pandemic. This comes to show why American Water Works is a safe and recession-proof investment.
  5. American Water Works has seen a rising demand for its products before this pandemic as the economy was strong. As the economy starts to pick up steam, American Water Works will benefit from increased volumes of water. This has seen it report rising revenues and profits over the past couple of financial years due to the reasons already mentioned. In the financial year of 2019, the company reported revenues of around 3.6 billion and profits of around 621 million. Both of these metrics are higher than what the company reported in the financial year of 2018 when they had revenues of around 3.4 billion and profits of around 567 million.
PHOTO CREDIT: Yahoo Finance

Why You Should Not?

  1. The COVID-19 Pandemic has decimated demand for water services for commercial customers like schools and large stadiums due to government regulation and as people continue to stay home. This has negatively impacted the company’s sales in the commercial business and will continue to impact them until the demand for commercial services return. The Pandemic has also negatively impacted their consumer base. The company has had to deal with unpaid bills from their consumers as well as the inability to raise prices in the future. This will also negatively impact the companies top and bottom line in the future.
  2. American Water Works faces tough competition from both public government-run water companies as well as private water companies like Aqua Works and American States Water Company. This makes them keep prices low and innovation high in order to keep their contracts with cities. This might hurt their growth and reduce returns on investments.

MY OPINION

In my opinion, I think that American Water Works is a great long term investment due to the essential products that it offers to an extensive consumer base and its steady growth in the water utility industry. However, impacts on the commercial industry and the COVID-19 Pandemic might hurt the company’s future growth.

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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