Water Intelligence (LON:WATR): A Cautionary Tale for Long-Term Investors

As a long-term investor, it's crucial to stay informed about the companies in your portfolio and the broader market trends. One stock that has caught my attention recently is Water Intelligence (LON:WATR), a provider of leak detection and remediation services for potable and non-potable water. While the company has shown promise in the past, its recent performance has been lackluster, with a 3-year change of -52.76% compared to the FTSE All Share Index's 46.67% over the same period. In this article, we'll explore the key factors that have contributed to Water Intelligence's underperformance and discuss the potential implications for long-term investors.



Market Cap and Volatility

Water Intelligence has a relatively small market capitalization of £67M, which may make it less attractive to institutional investors and more susceptible to market fluctuations. Additionally, the company's share price has been volatile over the past three months compared to the IL market, with a weekly volatility of 21.6% compared to the Software Industry average of 6.1% and the Market average of 4.2%. This volatility can deter investors and contribute to underperformance.

Valuation and Future Growth

Water Intelligence's valuation score is 3/6, indicating that it may be overvalued or undervalued compared to its peers. This could lead to mispricing and subsequent underperformance. Furthermore, the company's future growth score is 1/6, suggesting that the market may have low expectations for the company's growth prospects. This could result in lower demand for the stock and underperformance.

Past Performance and Financial Health

While Water Intelligence's past performance score is 4/6, indicating strong historical performance, the company's recent performance has been lackluster, with a 1-year change of 6.94% compared to the FTSE All Share Index's 46.67% over the same period. Additionally, the company's financial health score is 5/6, suggesting that the company is financially stable. However, the company's recent financial data availability risk indicates that there may be concerns about the transparency and reliability of its financial information.

Acquisitions and Expansions

Water Intelligence has made several acquisitions and expansions in recent years, including the acquisition of Nashville, Tennessee franchise for $3.25 million in February 2022, and the acquisition of Shanahan Plumbing LLC for $0.8 million in June 2022. These acquisitions may have required significant capital investment, which could have impacted the company's financial performance and share price.

Equity Buyback Plans

Water Intelligence has implemented equity buyback plans in August 2022 and October 2024, repurchasing a total of 2,956,769 shares representing 10% of its issued share capital. These buybacks may have reduced the number of outstanding shares, potentially increasing the share price, but they also represent a significant use of cash.

Postal Strike Delays

In December 2024, Current Water Technologies Inc. (TSX-V: WATR) announced delays in mailing its 2024 Annual General Meeting materials due to the ongoing postal strike in Canada. This delay may have affected the company's ability to communicate with shareholders and make strategic decisions, potentially impacting its share price performance.

Revenue and Earnings Misses

Water Intelligence has missed analyst expectations for earnings in the past, such as in June 2023 and June 2024. These misses may have contributed to the company's underperformance compared to its peers and the broader market.

Lessons for Long-Term Investors

As a long-term investor, it's essential to stay informed about the companies in your portfolio and the broader market trends. Water Intelligence's recent underperformance serves as a cautionary tale for investors who may have invested in the company three years ago. By understanding the key factors that contributed to the company's underperformance, investors can make more informed decisions about their portfolios and better navigate the market's ups and downs.

In conclusion, Water Intelligence's recent underperformance highlights the importance of thorough research and ongoing monitoring of the companies in your portfolio. By staying informed and adaptable, long-term investors can better navigate the market's challenges and capitalize on its opportunities.