Sabesp (SBSP3) is one of Brazil’s largest sanitation companies and plays a strategic role in water supply and sewage treatment in the state of São Paulo.

Founded in 1973, the company went through a major transformation following its privatization, completed in 2024.

For investors, this created a new investment thesis. In addition to the defensive characteristics traditionally associated with sanitation utilities, Sabesp now has the potential to improve efficiency, reduce costs and allocate capital with greater discipline.

Disclaimer: This article is provided for educational and informational purposes only. It does not constitute a recommendation to buy or sell securities.

Sabesp after privatization

Privatization significantly changed Sabesp’s shareholder structure and increased market expectations regarding operational efficiency.

However, the investment thesis does not depend on privatization alone.

The key issue is execution.

Sabesp needs to improve productivity, strengthen collections, control costs, expand sanitation coverage and turn its significant investment program into sustainable earnings and cash-flow growth.

This is particularly important because the company is going through one of the largest investment cycles in its history.

Sabesp’s key fundamental indicators

According to Investidor10 data checked on August 31, 2026, SBSP3 was trading at approximately BRL 25.24.

Last-twelve-month net income was approximately BRL 8.06 billion.

The P/E ratio was 11.06, the P/B ratio was 1.97, and EV/EBITDA was 7.96.

A P/E of 11.06 means that, in simplified terms, investors are paying approximately 11 times the company’s annual earnings.

For a sanitation company, I would consider this a reasonable multiple, although it would be difficult to describe the stock as extremely cheap based on this indicator alone.

The P/B ratio of 1.97 means that the market values the company at approximately twice its accounting book value.

The EV/EBITDA multiple of 7.96 indicates a valuation of approximately eight times EBITDA.

According to Investidor10, some of these multiples are above sector references, meaning that part of the expected operational improvement may already be reflected in the stock price.

Sabesp’s margins

Sabesp’s gross margin is 35.73%.

Its EBITDA margin is 37.87%, which is a strong figure and above the sector reference shown by Investidor10.

Its net margin is 19.67%, also significantly above the sector reference shown on the platform.

This indicates that Sabesp currently has a highly profitable operation.

For every BRL 100 in revenue, approximately BRL 19.67 becomes net income based on the indicator reported by Investidor10.

ROE, ROA and ROIC

Sabesp’s ROE is 17.80%.

This is a positive indicator because it shows a strong ability to generate earnings relative to shareholders’ equity.

The ROA is 6.74%, a reasonable figure for a company that is highly intensive in infrastructure and physical assets.

The ROIC is 7.89%.

This is an important point to monitor.

Sabesp’s ROIC is below the sector reference of approximately 10.73% shown by Investidor10. This means that one of the company’s major challenges will be turning its significant capital investments into higher returns.

This could become one of the most important indicators to monitor over the coming years.

The major investment cycle

Sabesp is currently undergoing a very significant investment cycle.

In 2025, the company reported approximately BRL 15.2 billion in investments, more than double the amount invested in 2024. Adjusted EBITDA reached approximately BRL 13.2 billion, while net income was approximately BRL 6.3 billion.

Investments remained high in 2026.

During the first quarter, investments reached approximately BRL 3.7 billion, while adjusted EBITDA reached approximately BRL 3.8 billion.

In the second quarter of 2026, net income was approximately BRL 1.46 billion, down 31% year over year, while EBITDA was close to BRL 3.9 billion.

This demonstrates why investors should not analyze the company based on a single quarter.

Revenue, EBITDA, margins, investments, debt, cash generation and return on invested capital should be analyzed together.

Sabesp dividends

Investidor10 currently shows a Dividend Yield of approximately 2.76%, while the five-year average is approximately 2.15%.

Therefore, I would not currently classify Sabesp as one of the leading Brazilian stocks for investors whose primary objective is dividend income.

The payout ratio is shown at 152.43%.

This deserves attention.

A payout above 100% means that, during the period considered by the indicator, distributions were higher than the accounting earnings used in the calculation.

This does not automatically mean that the company can maintain the same level of distributions in the future.

Debt

Sabesp’s net debt/EBITDA ratio is 2.21 times, according to Investidor10.

Net debt to equity is 0.76 times, while gross debt to equity is 1.14 times.

These indicators show that debt deserves monitoring, but they do not necessarily mean that the company has a problematic financial structure.

The key issue is the company’s very large investment requirement.

Therefore, investors should monitor whether EBITDA growth and cash generation will be sufficient to support the investment cycle without excessive deterioration in the company’s financial structure.

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Macroeconomic factors affecting Sabesp

Interest rates

Brazilian interest rates are one of the most important factors to monitor.

Higher rates increase financing costs and make fixed-income investments more competitive.

A company with significant debt is also naturally sensitive to the cost of capital.

Inflation

Inflation affects operating costs and can also interact with regulatory mechanisms and tariff adjustments.

Economic growth

Economic activity and household income should also be monitored.

Although sanitation is an essential and relatively defensive service, changes in household income can affect delinquency and customers’ ability to pay.

Regulation

Regulation is one of the most important variables in the thesis.

Tariffs, universalization targets, mandatory investments and regulatory rules can significantly affect returns on invested capital.

Foreign exchange and international rates

Foreign exchange movements and international financial conditions can influence financing costs and certain investments.

Infrastructure investment

For Sabesp, this is one of the core elements of the investment thesis.

The market expects the large investment cycle to generate greater efficiency, expanded coverage and stronger financial results.

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Is SBSP3 cheap, reasonable or expensive?

This is one of the most relevant questions for investors.

However, an important distinction should be made: these price ranges are educational valuation references, not price targets or investment recommendations.

With SBSP3 around BRL 25.24 and earnings per share of approximately BRL 2.28, we can perform a simple valuation exercise using earnings multiples.

My educational classification would be:

Up to approximately BRL 23: I would consider this a more attractive or relatively cheap range, particularly if fundamentals continue to improve.

Between BRL 23 and BRL 30: I would consider this a reasonable range, particularly for investors with a long-term view who believe in the post-privatization thesis.

Above BRL 30: I would begin to consider the stock more expensive, requiring stronger earnings and EBITDA growth to justify the valuation.

Above BRL 35: I would consider a more optimistic scenario necessary to justify the valuation based solely on current fundamentals.

Therefore, with SBSP3 around BRL 25, my interpretation is that the stock does not appear extremely cheap, but it also does not appear excessively expensive considering the company’s operational quality and potential for growth.

The key issue for the coming years will be whether the company’s investments generate stronger EBITDA, cash flow and ROIC.

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Conclusion

Sabesp has several attractive characteristics for long-term investors.

The company has scale, strategic importance, strong margins, a high ROE and a significant investment agenda that could create additional growth opportunities.

At the same time, there are risks.

Valuation should not be ignored, ROIC still needs to improve, and the company must demonstrate that its large investment cycle can translate into stronger cash generation and shareholder returns.

Therefore, instead of simply asking:

“Is Sabesp a good company?”

Investors should ask:

“Is Sabesp a good company at the price I am paying?”

That distinction is fundamental when analyzing any stock.

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