Recommendation: Buy
| Entry Date | Symbol | Recommendation | Entry Price (USD) | Target 1 (USD) | Target 2 (USD) | Holding Duration | Position Status | Return(%)* |
|---|---|---|---|---|---|---|---|---|
| 27 May, 25 | PCYO | Buy | USD 10.79 | USD 11.5 | USD 12.3 | 94 days | Closed |
6.21%
|
*Return(%) represent the percentage change between the entry price and exit price of the recommendation.
Data Powered by EOD Historical Data (“EODHD”).
Pure Cycle Corporation designs, constructs, operates, and maintains water and wastewater systems in the Denver metropolitan area and Colorado Front Range in the United States. It operates in two segments, Wholesale Water and Wastewater Services, and Land Development. The company engages in the wholesale water production, storage, treatment, and distribution systems; wastewater collection and treatment systems; development of 930-acre master-planned community; oil and gas leasing business; and construction and leasing of single-family homes. It serves domestic, commercial, and industrial customers in the Eastern Denver metropolitan region. Pure Cycle Corporation was incorporated in 1976 and is based in Watkins, Colorado.
Strong EBITDA Growth: EBITDA for the same period rose to $7.6 million from $4.2 million — an 81.9% increase YTD
Significant Increase in Net Income: Net income for the six months ended February 28, 2025, increased to $4.7 million compared to $2.2 million in the prior year — a 114% increase
Slight Decline in Lot Sales Revenue in Q2FY25: Revenue from lot sales decreased from $1.2 million in Q2 2024 to $1.1 million in Q2 2025, a 8.3% decrease, due to higher estimated completion costs
Sharp Decline in Water Deliveries: Water deliveries dropped from 404 acre-feet to 64 in Q2, and from 1,028 to 367 YTD — representing 84% and 64% decreases, respectively
Pure Cycle's revenue is heavily dependent on the timing of development activities and volatile oil and gas royalty income, exposing the company to risks from fluctuating commodity prices and construction delays
| Entry Price | Support* | Target 1** | Target 2** |
|---|---|---|---|
| 10.79 | 9.7 | 11.5 | 12.3 |
Data Source: REFINITIV, Analysis: StockNextt
*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.
**Target prices may vary by ±0.5% depending on market volatility.
Continued Profitability and Revenue Growth: Pure Cycle Corporation reported its financial results for the three and six months ended February 28, 2025, marking its twenty-third consecutive quarter of positive net income. Total revenues reached $4.0 million for Q2 and $9.7 million year-to-date (YTD), translating to net income of $0.8 million and $4.7 million, respectively. EBITDA stood at $1.8 million for Q2 and $7.6 million YTD, supported by increased activity in water tap sales and royalty income. The company also maintained a strong balance sheet, with cash and cash equivalents totaling $16.8 million as of February 28, 2025.
Progress at Sky Ranch Master Planned Community: Development at the Sky Ranch Master Planned Community continued during the seasonally slow winter quarter. Phase 2A is now fully completed, and Phase 2B is approximately 95% finished, with national homebuilders having completed or started construction on around 70 homes. Phase 2C is about 48% complete with lot deliveries anticipated by the end of fiscal 2025. Phase 2D has begun with grading completed and lot deliveries targeted for the end of calendar 2025. Additionally, the company has commenced platting Phase 2E, which is expected to deliver finished lots by the end of fiscal 2026.
Strength in Royalty and Water Tap Revenue: The company recorded $1.9 million and $4.7 million in royalty income for the three and six months ended February 28, 2025, respectively, stemming from oil and gas operations at Sky Ranch where six additional wells began production in 2024. In tandem, water and wastewater tap sales rose significantly to $2.1 million for Q2 and $3.6 million YTD, up from $0 and $0.6 million, respectively, in the prior-year periods. The company has cumulatively sold 895 taps across Phases 1, 2A, and 2B and projects over $20 million in additional tap fee revenue from Phase 2 over the next three years.
Land Development Revenue and Construction Activity: Revenue from lot sales declined slightly to $1.1 million in Q2 2025 from $1.2 million in Q2 2024 due to an increase in estimated costs to complete Phase 2B and the simultaneous construction of multiple phases. However, YTD lot sales revenue increased to $3.5 million from $3.1 million the previous year, as construction on Phases 2B, 2C, and 2D progressed. Revenue recognition aligns with construction milestones, contributing to fluctuations in reported earnings from this segment.
Stable Performance in Single-Family Rental Segment: Pure Cycle’s single-family rental business continued to generate steady income, contributing $0.1 million in Q2 and $0.2 million YTD, consistent with the prior-year period. As of February 28, 2025, 14 homes were completed and rented, with 17 more under contract in Phase 2B. The company anticipates expanding this portfolio to 98 homes across Phases 1 and 2, with potential to scale up to over 200 homes as Sky Ranch matures.
Operational and Strategic Capital Management: The company maintained working capital of $19.8 million, supporting ongoing development and opportunistic investments. Management reiterated its strategy of balancing growth initiatives with shareholder returns through selective land acquisitions and a share repurchase program. While residential water usage remains stable, industrial water sales to oil and gas operators declined sharply from 404 acre-feet to 64 acre-feet in Q2 and from 1,028 to 367 acre-feet YTD due to external market conditions.
Outlook and Management Commentary: CEO Mark Harding emphasized the company's strategic focus on entry-level housing and finished lot development, which continues to position Pure Cycle favorably among homebuilders. CFO Marc Spezialy noted robust development activity across multiple phases, reaffirming delivery targets for Phase 2C and Phase 2D and the initiation of Phase 2E. Management remains optimistic about future revenues from water, land development, and rentals as demand at Sky Ranch continues to grow.
Considering recent key business, financial updates, current trading levels, and key business risks, a ‘Buy’ recommendation has been given on Pure Cycle Corporation (NASDAQ: PCYO) at the current market price of USD 10.79, as on May 27, 2025 at 10:22 AM PDT.
Data Powered by EOD Historical Data (“EODHD”).
Sector: Utilities Industry: Utilities - Regulated Water
| Company | Change (USD) | Price (USD) | Trailing PE (x) | Forward PE (x) | Price Sales TTM (x) | Price to Book Value (x) | Enterprise Value to Revenue (x) | Enterprise Value to EBITDA (x) |
|---|---|---|---|---|---|---|---|---|
| PCYO Pure Cycle Corporation |
-0.185 1.60% | 11.39 | 34.59 | - | 12.36 | 1.93 | 11.77 | 19.67 |
| AWK American Water Works |
-0.7494 0.59% | 125.82 | 25.99 | 22.88 | 5.65 | 2.46 | 8.59 | 15.26 |
| WTRG Essential Utilities Inc |
-0.4 1.05% | 37.85 | 17.43 | 18.55 | 4.83 | 1.69 | 8.26 | 14.67 |
| SBS Companhia de Saneamento Basico do Estado de Sao Paulo SABESP ADR |
0.51 1.87% | 27.84 | 14.15 | 9.14 | 0.43 | 1.66 | 0.57 | 1.61 |
| STRNY Severn Trent PLC PK |
0.45 1.12% | 40.74 | 63.51 | 19.92 | 4.38 | 9.15 | 8.76 | 19.74 |
Data Powered by EOD Historical Data (“EODHD”).
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.
Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a short duration. Recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels as on May 27, 2025. The reference data in this report has been partly sourced from REFINITIV.
Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned has been achieved and is subject to the factors discussed above.
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Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
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Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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