When it comes to utility stocks, very few are penny stocks. Most utility stocks are large firms with slow growth and very little upside. However, not all utility stocks are like this, which is proven by the stock we’ll look at today. This company is involved in a resource we all need: water.
Pure Cycle Corporation (NASDAQ/PCYO) is a company that serves the Denver area by operating and maintaining the water and waste systems. The firm provides many of the same functions as some utility stocks, by treating, storing and delivering water to customers. It’s quite rare to find penny stocks in the same arena as large utility stocks. The company has water rights from groundwater, surface water, and reclaimed water. This is in addition to wells, pipes, reservoirs, and treatment facilities.
One of the biggest areas to watch for in utility stocks over the next decade is the water sector. Water is going to be in demand and utility stocks that can help meet this need should do quite well. In this sector, there are few penny stocks that have the existing base of clients and infrastructure that Pure Cycle does. The company is quite small, with a market capitalization of just over $50.0 million, but it has no debt and trades at just over one times book. The company needs to start generating profits before the stock price can really move up. The initial steps have been made, now the execution needs to occur.
In addition to water reservoirs and pipes, the company owns over 17,000 acres of farmland in Colorado, which it to farmers. The growth of oil and natural gas production from fracturing of wells is also creating great demand for water. This demand for water will help profits for utility stocks across the U.S., as these new extraction technologies will put a strain on existing facilities. This means more companies are needed to clean the water, store it if need be, and ultimately find a way to get water to customers.
Chart courtesy of www.StockCharts.com
While many penny stocks have been down this year, Pure Cycle has held up well. Following the huge rise in January where the stock almost doubled, it was certainly due for a pullback. One worrisome area is the circled region on the chart. This broke the uptrend that started earlier this year and now the stock is having trouble moving above the 200-day moving average. I would keep this name on my watch list along with other penny stocks that are still not yet generating strong profits. When penny stocks turn the corner to profitability, this is the time to start accumulating. I would also look at the technicals, not just of this stock, but all penny stocks. With so much resistance on the way back up, I would wait until the road is clear before stepping into any penny stocks with this technical profile.