Water is an essential yet increasingly scarce resource, with climate change, pollution, and growing demand intensifying the global water crisis. This has spotlighted companies specializing in water treatment, filtration, and desalination as they provide critical clean water solutions.

Hence, investors seeking sustainable opportunities might consider robust small-cap clean water stocks like The York Water Company (YORW), Consolidated Water Co. Ltd. (CWCO), and Pure Cycle Corporation (PCYO).

Drought is impacting 150 million people and 318 million acres of crops across U.S. states, with climate change and rising temperatures exacerbating water scarcity nationwide. In response, the Biden-Harris Administration's $3.6 billion water infrastructure funding offers opportunities for water treatment companies to tackle emerging contaminants, upgrade systems, and support underserved communities.

Small-cap companies in niche water-related markets offer substantial growth potential, especially those focused on advanced filtration systems and smart water management technologies. With the global water treatment systems market expected to grow at a CAGR of 8.1% from 2024 to 2030, investing in water-related stocks offers a defensive strategy, combining steady returns with exposure to an essential resource.

Additionally, the increasing social, political, and economic consequences of water shortages drive demand for innovative water solutions, enhancing stock performance in the sector. Sustainable investments in water infrastructure, from pipelines to wastewater treatment, are fueling growth. As a result, the water supply & irrigation system market is projected to reach $484.71 billion by 2028, with a 6.8% CAGR.

Considering these conducive trends, let’s analyze the fundamental aspects of the three Water picks, beginning with the third choice.

Stock #3: The York Water Company (YORW)

Valued at $516.32 million by market cap, YORW impounds, purifies, and distributes drinking water. It owns and operates three wastewater collection systems, ten wastewater collection and treatment systems, and two reservoirs, including Lake Williams and Lake Redman, which hold approximately 2.2 billion gallons of water.

On November 26, 2024, YORW announced a 4% increase in its quarterly dividend to $0.22 per share, marking its 616th consecutive dividend, payable January 15, 2025.

On September 30, 2024, YORW completed the acquisition of the Houston Run Community Water System in Lancaster County, expanding its services to 24 commercial/industrial customers. This follows the company's purchase of water system assets serving the Houston Run Industrial Park on September 26, 2024.

YORW’s trailing-12-month gross profit margin of 73.97% is 63.4% higher than the industry average of 45.26%. Likewise, its trailing-12-month EBIT margin and EBITDA margin of 38.58% and 55.58% are 78.2% and 49% higher than the industry averages of 21.65% and 37.30%, respectively.

For the fiscal quarter ended September 30, 2024, YORW's operating revenues increased 5.1% from the prior year to $19.72 million. The company’s net income and earnings per common share were $5.86 million and $0.41, respectively. Additionally, its dividends declared per common share rose 4% year-over-year to $0.21.

Analysts expect YORW’s revenue for the quarter ending December 31, 2024, to increase 5% year-over-year to $19 million. Its EPS for the quarter ending March 31, 2025, is expected to grow 13.3% year-over-year to $0.34. Over the past nine months, the stock has gained 1%, closing the last trading session at $35.92.

YORW’s POWR Ratings reflect its bright prospects. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

YORW has a B grade for Stability and Sentiment. Within the Water industry, it is ranked #5 out of 12 stocks. Click here for the additional POWR Ratings of YORW (Growth, Value, Momentum, and Quality).

Stock #2: Consolidated Water Co. Ltd. (CWCO)

Valued at $421.36 million by market cap, Headquartered in Grand Cayman, Cayman Islands, CWCO and its subsidiaries design, construct, manage, and operate water production and treatment plants primarily in the Cayman Islands, the Bahamas, and the United States. The company operates through four segments: Retail, Bulk, Services, and Manufacturing.

On November 25, 2024, CWCO announced a quarterly cash dividend of $0.11 per share for Q1 2025, payable on January 31, 2025, to shareholders of record by January 2, 2025.

In terms of the trailing-12-month Return on Common Equity, CWCO’s 13.59% is 43.8% higher than the 9.45% industry average. Likewise, its 15.36% trailing-12-month Return on Total Assets is 472.7% higher than the 2.68% industry average. In addition, its 0.71x trailing-12-month asset turnover ratio is 233.1% higher than the 0.21x industry average.

CWCO's total revenue for the nine months ended September 30, 2024, was $105.56 million. The company reported a gross profit of $37.13 million. Additionally, its net income attributable to CWCO stockholders was $26.78 million, up 35.6% year-over-year, while earnings per share attributable to CWCO stockholders grew 35.5% from the prior year's value to $1.68.

For the quarter ending June 30, 2025, CWCO’s revenue is expected to grow 10.8% year-over-year to $36 million. Its EPS for fiscal 2025 is expected to increase 8.1%  year-over-year to $1.34. CWCO surpassed the EPS estimates in each of the trailing four quarters. Over the past three months, the stock has declined 2.4% to close the last trading session at $26.61.

CWCO’s strong fundamentals are reflected in its POWR Ratings. It is ranked #2 in the Water industry. It has an A grade for Quality and a B for Momentum. Click here to see CWCO’s Growth, Value, Stability, and Sentiment ratings.

Stock #1: Pure Cycle Corporation (PCYO)

Valued at $351.47 million by market cap, PCYO provides wholesale water and wastewater services in the United States. It operates in two segments: Wholesale Water and Wastewater Services, and Land Development.

In terms of the trailing-12-month net income margin, PCYO’s 40.40% is 220.6% higher than the 12.60% industry average. Similarly, its 42.59% trailing-12-month EBIT margin is 96.7% higher than the 21.65% industry average. Moreover, its 5.83% trailing-12-month Return on Total Capital is 43.5% higher than the industry average of 4.07%.

PCYO’s total revenues for the year ended August 31, 2024, increased 97.1% year-over-year to $28.75 million. Its operating income grew 499.6% from the year-ago value to $12.24 million. Likewise, the company’s net income attributable and EPS rose 147.1% and 152.6% over the prior-year quarter to $11.61 million and $0.48, respectively.

Over the past six months, PCYO’s stock has gained 55.9%, closing the last trading session at $14.42.

PCYO’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Growth and Quality. Within the same industry, it is ranked first. Beyond what we stated above, we also have given PCYO grades for Value, Momentum, Stability, and Sentiment. Get all the PCYO ratings here.

What To Do Next?

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YORW shares were unchanged in after-hours trading Wednesday. Year-to-date, YORW has declined -5.21%, versus a 27.18% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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