Paris-based utility group Veolia Environnement SA (NYSE:VE) performs what may be considered a dirty job by some. Veolia operates water treatment and energy services for municipalities in key markets including the U.S., China and the U.K. Along with the basic need for clean water in Asian markets, the following basket of ratios will help investors mine for value in Veolia.

Identifying the Need
Parts of Veolia's work maybe dirty, but the need for its services is present and growing. Charitable donor advisory group Give2Asia listed water treatment as the primary need in regions of China hit hardest by earthquakes prior to the summer Olympics. In addition, the need for water treatment in China's growing cities is a palpable, but perhaps under acknowledged, need.

Valuation
Veolia offers value investors a dream-like combination of low ratios, which also makes the stock look attractive.

Earnings Growth
With a PEG ratio below "1", at 0.83, Veolia is expected to have strong earnings growth over the next five years. Remember, the PEG ratio amounts to the money an investor is willing to pay for each dollar of earnings generated, divided by the expected earnings growth rate. Therefore, a forward P/E ratio of 7.17 suggests that investors are willing to pay $7.17 for each dollar of earnings. The approximate earnings growth rate for the next five years is 8.6%.

Discount to Revenue
Veolia also has a low price-to-sales ratio to compliment its low PEG. Because fuzzy math can be applied more easily to lower levels of financial statements, the P/S, which is related to revenue and tops the income statement, is a good ratio to use. A P/S ratio of "1" means investors pay $1 for each $1 of revenue generated. The P/S formula is the current stock price divided by revenue per share for the trailing twelve months. With a P/S ratio below "1", at 0.22, Veolia investors pay an estimated 22 cents for each $1 of revenue generated, signaling the current discount available to investors. (To learn more about using ratios to value stocks, read Use Price-To-Sales Ratios To Value Stocks.)

Close to Book
The price-to-book ratio measures how a stock's price is trading in relation to the actual breakup value of a company. A tech company like Google (Nasdaq:GOOG) has a P/B ratio of 3.76, which means its $300+ stock price is well above its $87.61 book value. Veolia has a P/B ratio of 1.04, which indicates that the stock is trading just north of its book value. Trading near or below book value can be another sign of value. (For more reading on book value, check out Value by the Book.)

Other foreign water utilities with similar signs of value include Cayman Islands-based Consolidated Water Company (Nasdaq:CWCO) and Brazil-based Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS).

Final Thoughts
Along with its list value principles, Veolia offers a dividend. Dirty jobs often go unnoticed to end users of the final product, but investors should take notice of these purifiers of perhaps the world's most important commodity.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!