Fundamental signals of investment profitability in the global water industry

Abstract

We investigate the fundamental company variables that can serve as indicators of profitability for global water company stocks. We examine all the 20 firms (11 water utility and nine water infrastructure and water treatment) that comprise the World Water Index over the period 2004-2011 using panel regression analysis. We find that nine fundamental variables are relevant in predicting profitability of water firms: sales and administrative expenses; earnings before interest and taxes; accounts receivable; goodwill and intangible assets; accounts payable; operating profits; inventory; plant, property and equipment; and dividend. With the exception of accounts payable, all these variables are able to serve as signal of profitability of water utility firms whereas only the first five variables are relevant in signalling the profitability of the other firms. We discuss in the paper the specific association of each of these variables with company stock returns.