What happened

Shares of York Water Company (NASDAQ:YORW) plummeted 11.7% in May, according to data from S&P Global Market Intelligence. Even with this drop, however, the central Pennsylvania water utility's stock has returned 20.8% over the one-year period through June 2. 

For context, shares of the United States' largest and second-largest publicly traded water utilities, American Water Works and Aqua America, slid 2% and 1.2%, respectively, in May, and have returned 5% and 1.1% over the past year. The S&P 500 returned 1.4% in May and has returned 18.7% so far this year.

YORW Chart

YORW data by YCharts.

So what

York Water stock's drop began in late April, and the company didn't report its first-quarter 2017 earnings until May 2, so the earnings release didn't precipitate the stock's decline. However, it's possible the release played a role. York's results were decent: Revenue was flat with the year-ago quarter, but earnings per share increased 5.3% to $0.20, which was slightly above the $0.19 Wall Street was expecting. That said, given the stock's recent valuation run-up, some investors might have wanted to see better results.

Water flowing out of an agricultural pipe.

Image source: Getty Images.

York Water did announce some not-so-good news about finding unacceptable lead levels in some of its customers' drinking water during routine testing, which it's addressing. However, this news was announced in the fall, so it doesn't appear related to May's stock price drop.

All of the stocks of water utility companies with market caps above $300 million, except for American States Water, declined in May. While York Water's stock dropped the most, its stock price also returned the most of the pure-play water utilities operating in the U.S. over the one-year period through January. Likewise, its valuation on a forward price-to-earnings basis had ballooned the most -- to 35.2, which is pricey for a stock that analysts expect to grow EPS an average of 4.9% per year over the next five years. So it seems likely York stock's May decline had much to do with water stocks' correcting after running up to seemingly unsustainable valuations.

Now what

Investors in York Water shouldn't change course because of the stock's drop in May. The stock's valuation simply appears to have gotten ahead of itself after its big price run-up in recent years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.