- Strong Q1 Performance: Revenue reached $9 million with gross profit of $6.2 million, achieving one-third of the fiscal year forecast early.
- Land Development Progress: Midway through Phase 2D, advancing to Phase 2E with 160 new lots, and 19 single-family rental homes completed, 40 under contract.
- Water Portfolio Capacity: 2,800 acre-feet annual production capacity, utilizing only 3% in Q1, with tap fees rising 6-7% annually to $42,000 per connection.
- EPS Guidance & Home Appreciation: Fiscal 2026 EPS guidance of $0.43–$0.52 due to oil/gas uncertainty; Sky Ranch homes appreciated 30-40% since initial sale.
- Future Commercial Growth: Interchange completion in 2027 will unlock commercial parcel sales and data center opportunities, driving revenue scaling post-2027.
Segment Performance
The water utility segment saw a record quarter overall, although it was slightly softer than normal due to the timing of building permits and a gap in oil and gas deliveries. The company expects an uptick in oil and gas revenues for the rest of the year. The land development segment was a key driver of the quarter's results, with the company midway through Phase 2D and moving into Phase 2E, which will include about 160 lots. Mark Harding noted that tap fees have increased by 6-7% per year over the last 3-4 years, reaching around $42,000 per year for water and wastewater connections.
Growth Prospects
The single-family rental segment continues to drive recurring revenues, with 19 homes completed and rented, and another 40 units under contract. The company is optimistic about its future prospects, with a strong balance sheet and a focus on building its recurring revenue base. The company has a substantial amount of capacity in its water portfolio, with about 2,800 acre feet of annual production capacity, and is exploring opportunities for data centers, leveraging its available water and proximity to power sources.
Valuation and Outlook
With a P/E Ratio of 19.58 and a P/S Ratio of 9.12, the company's valuation appears to be pricing in significant growth expectations. The company's ROE stands at 9.79%, indicating a relatively healthy return on equity. The company provided its fiscal year guidance, with earnings per share expected to be between $0.43 and $0.52. Analysts estimate next year's revenue growth at None%. The company's capital allocation strategy focuses on investing in its three business segments, with a goal of delivering recurring revenues and growing shareholder value.
Future Developments
The company is optimistic about land acquisitions, citing increased interest from landowners and a strong runway for growth beyond its current $600-700 million monetization target for Sky Ranch. The interchange construction, expected to be completed in 2027, is expected to unlock new commercial opportunities, with the company planning to sell commercial lots in addition to residential lots after its completion.