H2O AMERICA (HTO) Stock Analysis
H2O AMERICA (HTO) Stock Analysis
Overall Grade: F (Concerning)
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H2O AMERICA faces challenges in financial performance that warrant careful analysis.
Key Metrics:
| Metric | Value | Context |
|---|---|---|
| ROIC | 4.9% | Below expectations |
| FCF Margin | 30.6% | Strong cash generation |
| Debt/Equity | 1.2x | Moderate leverage |
Investment Thesis: Healthy free cash flow margin of 30.6% provides financial flexibility for growth and shareholder returns.
What is H2O AMERICA's Profitability and ROIC?
H2O AMERICA's return on invested capital of 4.9% is below the typical cost of capital.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 4.9% | Warning | Below cost of capital |
| Return on Equity (ROE) | 7.0% | Warning | Moderate equity returns |
| Operating Margin | 22.2% | Excellent | Efficient operations |
How Strong is H2O AMERICA's Cash Flow Quality?
H2O AMERICA generated $244.8M in free cash flow over the trailing twelve months, representing a 30.6% margin. Cash earnings quality is strong, with operating cash flow exceeding net income by 2.4x.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Free Cash Flow Margin | 30.6% | Excellent | Excellent cash conversion |
| Free Cash Flow (TTM) | $244.8M | Good | Positive cash generation |
| OCF/Net Income | 2.4x | Excellent | High earnings quality |
| FCF Consistency (8Q) | N/A | Warning | Variable cash flow |
What is H2O AMERICA's Financial Health?
H2O AMERICA's debt-to-equity ratio of 1.2x indicates moderate leverage.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Debt to Equity | 1.2x | Adequate | Moderate leverage |
| Net Cash Position | $-1.9B | Warning | Net debt position |
Is H2O AMERICA Stock Overvalued or Undervalued?
H2O AMERICA trades at a P/E of 16.8x, representing a premium to the sector median of N/A. Free cash flow yield of 14.3% offers attractive cash returns.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| P/E Ratio | 16.8x | Adequate | Reasonable valuation |
| EV/Sales | 4.3x | Good | Growth premium priced in |
| FCF Yield | 14.3% | Excellent | Attractive cash return |
| Dividend Yield | 3.4% | Adequate | Meaningful income |
Sector Rankings
| Metric | Value | Percentile | vs Median |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 4.9% | Bottom 50% | 0.8x below |
| Free Cash Flow Margin | 30.6% | Top 5% | - |
| Operating Margin | 22.2% | Top 50% | 1.0x above |
| Return on Equity (ROE) | 7.0% | Bottom 25% | 0.7x below |
| P/E Ratio | 16.8x | N/A | - |
Rating Thresholds
Return on Invested Capital (ROIC)
Measures how efficiently a company uses its debt and equity capital to generate profits. ROIC above 15% typically indicates a competitive moat.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Exceptional capital efficiency, strong competitive moat |
| Good | 12% - 20% | Above-average returns, sustainable competitive position |
| Adequate | 8% - 12% | Around cost of capital, moderate competitive position |
| Warning | 4% - 8% | Below cost of capital, value may be eroding |
| Red flag | < 4% | Significant capital destruction, fundamental issues |
Current: 4.9% (Warning - Bottom 50% of sector (median: 5.9%))
Free Cash Flow Margin
The percentage of revenue converted to free cash flow. Higher margins indicate stronger cash generation and business quality.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Strong cash generation, high-quality business |
| Good | 10% - 20% | Healthy cash conversion |
| Adequate | 5% - 10% | Moderate cash generation |
| Warning | 0% - 5% | Thin cash margins, capital intensive |
| Red flag | < 0% | Cash burn, potential liquidity concerns |
Current: 30.6% (Excellent - Top 5% of sector (median: 0.0%))
Debt to Equity Ratio
Total debt divided by shareholders' equity. Lower ratios indicate more conservative financing and reduced financial risk.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 0.3x | Conservative leverage, strong balance sheet |
| Good | 0.3x - 0.7x | Moderate leverage, healthy financial position |
| Adequate | 0.7x - 1.5x | Elevated leverage, monitor closely |
| Warning | 1.5x - 3.0x | High leverage, increased financial risk |
| Red flag | > 3.0x | Excessive leverage, potential distress risk |
Current: 122.7% (Adequate)
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Lower P/E may indicate undervaluation, while higher P/E suggests growth expectations.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 15x | Attractively valued, potential opportunity |
| Good | 15x - 25x | Fair value for quality company |
| Adequate | 25x - 35x | Growth premium, justify with earnings growth |
| Warning | 35x - 50x | High expectations priced in |
| Red flag | > 50x or negative | Speculative valuation or losses |
Current: 16.8x (Adequate)
Free Cash Flow Yield
Free cash flow per share divided by stock price. Higher FCF yield indicates better cash return relative to valuation.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 8% | High cash return, potential value opportunity |
| Good | 5% - 8% | Solid cash yield |
| Adequate | 3% - 5% | Moderate cash return |
| Warning | 1% - 3% | Low cash yield, growth expectations |
| Red flag | < 1% | Minimal cash return to shareholders |
Current: 14.3% (Excellent)
Frequently Asked Questions
Q: What is H2O AMERICA's Return on Invested Capital (ROIC)?
H2O AMERICA (HTO) has a trailing twelve-month Return on Invested Capital (ROIC) of 4.9%. This compares below the sector median of 5.9%. An ROIC below 8% suggests the company may be destroying shareholder value.
Q: What is H2O AMERICA's Free Cash Flow Margin?
H2O AMERICA (HTO) has a free cash flow margin of 30.6%, generating $244.8 million in free cash flow over the trailing twelve months. A FCF margin above 20% indicates excellent cash conversion and a high-quality business model.
Q: Is H2O AMERICA stock overvalued or undervalued?
H2O AMERICA (HTO) trades at a P/E ratio of 16.8x, which is above the sector median of N/A. The EV/Sales multiple is 4.3x. Free cash flow yield is 14.3%, which represents an attractive cash return to investors.
Q: Does H2O AMERICA pay a dividend?
H2O AMERICA (HTO) currently pays a dividend yield of 3.4%. Including share buybacks, the total shareholder yield is 3.4%. This yield is moderate, suggesting a balance between income and growth reinvestment.
Q: How much debt does H2O AMERICA have?
H2O AMERICA (HTO) has a debt-to-equity ratio of 1.2x with total debt of $1.9 billion. Net debt position is $1.9 billion.
Q: What is H2O AMERICA's revenue and earnings growth?
H2O AMERICA (HTO) grew revenue by 7.0% year-over-year. Earnings per share increased by 1.7% compared to the prior year. Modest growth indicates a mature business with stable demand.
Q: How does H2O AMERICA compare to competitors in Utilities?
Compared to other companies in Utilities, H2O AMERICA (HTO) shows: ROIC of 4.9% is below the sector median of 5.9% (Bottom 31%). FCF margin of 30.6% exceeds the sector median of 0.0% (Top 3% of sector). These rankings are based on MetricDuck's analysis of all Utilities companies with available SEC filings.
Q: What warning signs should I watch for with H2O AMERICA?
H2O AMERICA (HTO) shows no major financial warning signs based on current metrics. However, investors should always monitor: 1) Margin compression trends, 2) Cash flow consistency, 3) Debt levels relative to cash generation, and 4) Changes in competitive positioning.
Data Source: Data sourced from 10-Q filed 2025-10-28. TTM metrics as of Q4 2025.
Methodology: Financial metrics calculated from SEC 10-K and 10-Q filings using standardized formulas. Sector comparisons use peer group based on SIC code.
This analysis is for informational purposes only and does not constitute investment advice.