What Does Cal Water’s Falling Multiple Really Say?
For questions about this article or underlying research, email help@trefis.com.
Shareholders of California Water Service (CWT) know the usual rule: a lower price-to-earnings multiple, or what investors pay for each dollar of profit, indicates a cheaper stock. Three years ago, Cal Water traded at 66 times its profit. Today the multiple sits at 22.5. So has a multiple that fell this far made Cal Water stock cheaper?
Cal Water Stock Rose While Its Multiple Fell
The share price did not fall to bring the multiple down. Cal Water stock rose 4.6% over those three years, before dividends, while its diluted share count climbed to 62.5 million from 57.7 million. The share price moved slightly higher while the multiple declined.
How Much Has Cal Water’s Profit Grown?
Over the latest twelve months, Cal Water’s profit stood at $137 million. That total is up from $41.4 million three years earlier, or 3.3 times as much.
| Twelve months to | Net income | Change in a year | Price-to-earnings |
|---|---|---|---|
| Sep 30, 2021 | $113 million | +22.1% | 27 |
| Sep 30, 2022 | $79.9 million | -29.3% | 35.6 |
| Sep 30, 2023 | $41.4 million | -48.3% | 66 |
| Sep 30, 2024 | $201 million | +386.7% | 15.9 |
| Sep 30, 2025 | $136 million | -32.2% | 20 |
| Sep 30, 2026 | $137 million | +0.736% | 21 |
| Sep 30, 2026 (at the share price of Nov 2, 2026) | $137 million | +0.736% | 22.5 |
Net income is the reported total for the twelve months ending on the date shown. Change in a year is that net income against the twelve months before. Each price-to-earnings multiple is the market value at the calendar quarter end paired with those twelve months, over that net income; the last row uses the share price of Nov 2, 2026.
This growth did not happen in steady steps. Profit fell for two consecutive years before jumping in the twelve months to September 2024, and it has remained below that year’s level ever since.
Cal Water provides water service mostly in California, a region management said on its October 29 call makes up 90% of the company. In fiscal Q3 2026, revenue rose 6.7%, mainly from rate changes and new customers, management said.
Does A Lower Multiple Make Cal Water Cheaper?
Not in the way the rule suggests. A better question is what investors were paying for when the multiple was high, and how much of it has since arrived. Three years ago, Cal Water’s multiple reached its highest point at any quarter end in the past ten years, a figure that followed two consecutive years of falling profit. If investors paid that much for each dollar of a shrunken profit, they were most likely paying for profit they expected to grow back. It did.
A buyer today pays less for each dollar of profit than a buyer did three years ago. However, that earlier buyer was paying in advance for the growth that has since occurred, so today’s buyer pays for profit already on the books, not for a rebound still to come. Cal Water’s multiple has traced a familiar curve: highest while the profit was still expected, and lower once it arrived.
Where Is Cal Water On That Curve Now?
Cal Water’s profit has stopped falling but has barely grown. It rose 0.7% in the latest twelve months, after dropping 32.2% the year before. Sales grew faster, up 7.3% over the same twelve months.
Cal Water’s multiple now sits close to the S&P 500’s multiple of 22.8. Profit growth from that flat latest year is the figure to watch, starting with the report expected in February 2027.
Does This Mean You Should Act On CWT?
Our purpose is to inform you with unique data so you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.
There is a smarter approach. Since its inception, the Trefis High Quality (HQ) Portfolio has returned 105%, beating the benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. And it did so without taking the concentrated risk that comes with do-it-yourself stock picking. If that is how you want to invest, the HQ Portfolio is the place to start.
Spot an error or want more like this? Tell us in 10 seconds.