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If you are wondering whether American Water Works Company is offering fair value at its recent price, this article walks through what the numbers are saying and how that might matter for your portfolio.
The stock recently closed at US$133.34, with returns of 4.2% over the last 7 days, 2.3% year to date, and 7.9% over the past year, while the 3 year and 5 year returns stand at a 6.0% decline and an 8.6% decline respectively.
Recent share price moves have been drawing more attention to how investors are currently viewing regulated utilities and essential service providers. In this context, the latest performance figures for American Water Works Company are adding fresh input to long term holders and new watchers alike.
On Simply Wall St’s valuation checks, American Water Works Company scores 0 out of 6 for being undervalued, which you can see in detail here: 0 / 6 valuation score. Next, we look at how different valuation methods approach this stock, before finishing with a framework that can help you think about value in an even more useful way.
American Water Works Company scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Dividend Discount Model looks at a stock by asking a simple question: what are the cash dividends you might receive over time, and what are those payments worth in today’s dollars? It ties value directly to the sustainability and growth of dividends rather than to earnings or cash flow alone.
For American Water Works Company, the model uses a dividend per share of about US$3.91, a return on equity of 10.42% and a payout ratio of 56.23%. Expected dividend growth is capped at 3.26%, compared with an underlying expected growth rate of 4.56%, which keeps the assumptions more conservative. These inputs produce a DDM intrinsic value estimate of roughly US$105.75 per share.
Against the recent share price of US$133.34, this indicates that the stock is about 26.1% above this dividend-based valuation estimate. In other words, you are paying a premium today relative to what the model suggests the future dividend stream is worth.
Result: OVERVALUED
Our Dividend Discount Model (DDM) analysis suggests American Water Works Company may be overvalued by 26.1%. Discover 871 undervalued stocks or create your own screener to find better value opportunities.
AWK Discounted Cash Flow as at Jan 2026
Story Continues
For a consistently profitable business, the P/E ratio is a practical way to think about value because it links what you pay directly to the earnings the company is already generating. A higher or lower P/E often reflects what the market is pricing in around future growth and risk, with faster growing or lower risk companies typically trading on richer multiples, and slower growing or higher risk names often sitting on lower ones.
American Water Works Company currently trades on a P/E of 23.40x. That sits above the Water Utilities industry average P/E of 16.18x and above the peer average of 19.27x. Simply Wall St also calculates a proprietary “Fair Ratio” of 21.52x, which is the P/E level that might be expected given factors such as the company’s earnings growth profile, its industry, profit margins, market cap and risk characteristics.
This Fair Ratio can be more informative than a simple peer or industry comparison because it adjusts for company specific drivers like growth, profitability and risk, rather than assuming all utilities deserve the same multiple. Set against the current 23.40x P/E, the 21.52x Fair Ratio suggests the shares are trading at a premium to that model based view.
Result: OVERVALUED
NYSE:AWK P/E Ratio as at Jan 2026
P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simple stories you create about a company that link your view of its future revenue, earnings and margins to a financial forecast, then to a fair value that you can compare against the current price. On Simply Wall St’s Community page, used by millions of investors, you can pick or build a Narrative for American Water Works Company that reflects your own assumptions and see a fair value that updates automatically when new information such as news, earnings or merger developments arrives. Narratives also make it easier to decide when you might want to buy or sell, because you are directly comparing your Fair Value to the live market price instead of relying only on headline multiples. For example, one investor might align with the highest analyst price target of US$159.00 based on confidence in merger benefits and earnings reaching about US$1.4b with a future P/E of 25.4x. Another investor might lean toward the US$116.00 target if they focus more on risks around debt, regulation and infrastructure spending.
Do you think there’s more to the story for American Water Works Company? Head over to our Community to see what others are saying!
NYSE:AWK 1-Year Stock Price Chart
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include AWK.
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