Water Investment Ideas

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>>> Energy Recovery Generates Soaring Profits On Environmental Expertise; Growth Stock Acts Well


Investor's Business Daily

by STEVEN BELL

03/09/2023


https://www.investors.com/stock-lists/stock-spotlight/energy-recovery-generates-soaring-profits-on-environmental-expertise-growth-stock-acts-well/?src=A00220


There are many companies that boast about their environmental track record, though few have delivered meaningful changes. Growth stock Energy Recovery (ERII) is an exception and has earned its way into IBD Stock Spotlight amid soaring profits.

The company — headquartered in San Leandro, Calif. — specializes in the production of water desalination devices, wastewater treatment systems and CO2 reduction systems used in refrigeration.

Water security and access to clean water are long-term problems that are projected to get worse as water basins dwindle and climate change results in less predictable weather and longer droughts.

Nevertheless one needs to look no further than company earnings to see growth in these industries is occurring now.

Growth Stock Reports Solid Fourth-Quarter Profits

Energy Recovery reported fourth-quarter results on Feb. 22. As demand for desalination devices took off, earnings came in at 24 cents per share, up 167%, amid record revenue of $42.3 million. Growth has been impressive, with earnings for the quarter alone matching the full-year EPS in 2021.

While shareholders have been rewarded for strong results, the ride has been bumpy. After the company reported poor third-quarter results Nov. 3, shares dropped over 27% in a single day. This highlights the risk to a company that is largely dependent on a few devices.

Nevertheless, investors can take some solace that the company has been making inroads in its diversification into CO2 reduction devices used in refrigeration.

On Feb. 22, Energy Recovery announced an exclusive distribution agreement with Belgium-based Fieuw Koeltechniek to use CO2 reduction devices in its refrigeration systems.

Newest Desalination Device Unveiled

Energy Recovery also recently unveiled its newest desalination device, the PX Q-400, which is 25% more effective than previous models.

In the longer term, further inroads to reducing the cost of water desalination — which continues to be expensive — is critical for Energy Recovery to maintain its competitive advantage over peers and provide increased viability for water desalination.

Shares of Energy Recovery are forming a cup base with a 26.44 buy point, according to MarketSmith pattern recognition.

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