Energy Recovery (ERII)

Desalination is going to end up being the most important-vital technology in the future, period. Every major city in the United States is on some form of water restriction due to drought conditions. I get fined $250 for watering my grass on the wrong day. This technology is used worldwide already in every middleast nation. In summary...every town, village, city ever formed was formed around a water source.

This will be the next energy-like crisis.

Energy Recovery, Inc.'s devices are used in water desalination plants around the globe. These patented devices provide the most energy cost savings in the market -reducing power costs by up to 60%.

"By making it economically possible to obtain an abundant supply of fresh water from the world's oceans, ERI has proudly become a key part of making the age-old dream of world-wide, affordable water a reality."

ERII is fresh off their IPO in early July. Earnings come out on August 12th. July 25th's drop of approx. 7% seems like a good entry point. I am personally in more agressive plays, however, I have a strong believe in this company's potential. I see this one as having potential for huge growth, while also being a safe play.

Company is well positioned. A great "water" play with 70% market share in providing energy saving equipment in an energy intensive business (water desalinization). Company has loads of cash and no debt due to its recent IPO in July. Moving locations to ramp up production but managing costs carefully. With market down, cash is king and company can look to grow through select acquisitions (or keep the cash to fund organic growth).

What's not to like? Water is and will be an ever increasing global problem- desalinization is a logical solution despite its high energy consumption. This business provides a win/win solution to reduce the cost via a product thats better than the competition.

Should be a steady performer going forward. Company has great growth prospects and is profitable with good visabilit. Recent drop in stock price allows you to pick up this company a half the IPO price with limited downside risk.

This stock will go much lower until it establishes an earnings record. All of the insiders bailed on the stock on July 8th, reaping profits after the IPO.

What brings the economy out of a recession; small caps and technology, more specifically disruptive technology. ERII represents both.

I recently went to the local aquarium and saw a sign that said “Of all the water in the world, less than 5% is drinkable”. This made me think and when I came home today and saw that ERII hit a new low, I saw this as my opportunity to pull the trigger. Now for the reasons behind my actions.

This company started making noise with its IPO a little over a month ago which was positive in an otherwise dull and dead IPO market. Many people were scared because all the insiders sold their stock on the first day, but I read further into the report and saw that this was part of the deal for them being taken public. ERII reported their Q2 results last week, with revenues growing over 240% to $12 million. They reported EPS of $0.01 in the quarter, compared with a net loss of $0.01 a year ago. The company expects revenue of $6.8-$7.2 million with net income of breakeven to $300,000. For the year, they expect revenues of $49-$51 million with EPS of $0.14-$0.15. Directly after reporting these results, the stock dropped, hard falling almost 10%. Since then the stock has lingered around and finally, today reached a new 52 week low (well really 12 week but you get the picture). I think this presents a great buying opportunity for a stock that provides water, the one absolutely necessary item for human life that we are running out of. Analysts started to take notice as well with Citi placing a HOLD rating on the stock with an $11 price target (a current 26% gain) and with CreditSuits putting an OUTPERFORM rating on the stock (a current 37% gain). But why stop there, this stock is long long term. The need for this company is only going to increase over time and just imagine what will happen when they go global. Thinking big picture this technology has the potential to end droughts which will decrease famine and world hunger. I have pulled the trigger as of close today and will forget about this stock and be glad to. If you have ever seen a multibagger in the making, that is this company. Buy 50 or 100 shares and then come back in a few years when we have less water and this company has grown even further and just smile and kiss those stock certificates.

Water is the new oil.

If we can find a way to make desalinization cost-efficient, that will go a long way toward providing the water we need.

It looks like Energy Recovery may have a solution.

One possibility: I see GE or a big conglomerate buying them out in a few years at a very handsome price. That wouldn't be all bad, either.

I am a big believer that global warming will be very disruptive to current patterns of natural water distribution. The fact that throughout history, people have settled where food and water naturally occur means that when this disruption occurs, there will be large populations of people living in places with water shortages.
That combined with the fact that there is a disproportionate number of people leaving near coasts means that desalination will become a necessary means of supplying water to people.

Currently, desalinization is expensive, primarily due to the large energy requirements needed to remove the salts from the water. Energy Recovery's technology significantly reduces the energy needed to carry out this process. In addition, they have a strong worldwide customer base that will help diversify there business.

How can you possibly refuse not to pick a company that helps reduce the energy cost of SWRO Desalination by 60%. Will it's revenue be bit lumpy? Of course for awhile yet ( 1-2yr). Especially when the World population is pushing toward 7 Billion and the percentage of fresh water throughout the entire World is less than 1%! Their technology is patentable but the ceramic rotor patent does expire in 1 yr. They have also taken control of their own parts supply by producing up 50% of ceramic parts needs. (Hopefully at a lower real cost than they could purchase). But, the opportunity cost of not having the parts in the first place would be even greater in lost sales. They will continue to lead and perhaps become a purchase target by someone like G.E. or PICO.

Does the original inventor Hauge propose a problem. I don't so much so because he's so much of a perfectionist he misses opportunities to get product into production. I really don't think that Hauge can make any significant changes to a product that is already 98% Efficient. Capturing another 1 or 2% would come at too high a cost to generate returns.
ERII will steam ahead.

This is another pick that I wish that I had made on 3/09, but with fresh water poised to become more scarce in the next 5 years I think that this is a good bet for long term performance. Having large cash reserves and no debit is quite refreshing as well.

Superior technology in a rapidly expanding market

reverse osmosis is where you go to sleep on a book and it writes itself while you sleep....I think....

The Company is engaged in the design, development, manufacture and sale of energy recovery devices for sea water reverse osmosis desalination worldwide.

FINANCIAL RATIOS

Company Industry
Valuation Ratios
P/E Ratio (TTM) 35.60 24.00
P/E High - Last 5 Yrs N.A. 39.70
P/E Low - Last 5 Yrs N.A. 14.50
Beta 0.00 1.35
Price to Sales (TTM) 6.09 1.31
Price to Book (MRQ) 3.10 4.50
Price to Tangible Book (MRQ) 3.12 7.06
Price to Cash Flow (TTM) 33.80 15.50
Price to Free Cash Flow (TTM) 61.50 87.60
Dividends
Dividend Yield (%) 0.00 1.00
Dividend Yield - 5 Yr Avg (%) N.A. 0.70
Dividend 5 Yr Growth Rate (%) N.A. 4.56
Payout Ratio (TTM) 0.00 21.00
Sales (MRQ) vs Qtr 1 Yr Ago (%) 38.70 -20.30
Sales (TTM) vs TTM 1 Yr Ago (%) 47.20 15.30
Growth Rates (%)
Sales - 5 Yr Growth Rate (%) N.A. 5.68
EPS (MRQ) vs Qtr 1 Yr Ago (%) 64.10 -34.80
EPS (TTM) vs TTM 1 Yr Ago (%) 64.10 -34.80
EPS - 5 Yr Growth Rate (%) N.A. -6.25
Capital Spending - 5 Yr Growth Rate (%) N.A. 15.39
Financial Strength
Quick Ratio (MRQ) 9.80 1.50
Current Ratio (MRQ) 11.90 2.30
LT Debt to Equity (MRQ) 0.00 0.40
Total Debt to Equity (MRQ) 0.00 0.53
Interest Coverage (TTM) 155.10 11.10
Profitability Ratios (%)
Gross Margin (TTM) 65.40 33.70
Gross Margin - 5 Yr Avg N.A. 33.50
EBITD Margin (TTM) 27.20 11.30
EBITD - 5 Yr Avg 0.00 0.00
Pre-Tax Margin (TTM) 26.30 8.20
Pre-Tax Margin - 5 Yr Avg N.A. 9.10
Management Effectiveness (%)
Net Profit Margin (TTM) 0.17 0.06
Net Profit Margin - 5 Yr Avg N.A. 6.30
Return on Assets (TTM) 7.80 8.20
Return on Assets - 5 Yr Avg N.A. 8.70
Return on Investment (TTM) 8.50 11.90
Return on Investment - 5 Yr Avg N.A. 14.10
Efficiency
Revenue/Employee (TTM) 625,225.00 180,448.00
Net Income/Employee (TTM) 104,157.00 10,616.00
Receivable Turnover (TTM) 3.50 5.60
Inventory Turnover (TTM) 2.30 6.30
Asset Turnover (TTM) 0.70 1.40
Short Interest
Current Month (Mil) 2.98
Previous Month (Mil) 2.89
Short Interest Ratio (Days) 15.50
Management Effectiveness
Return on Equity 8.50
Return on Assets 7.80
Return on Investments 8.50
Profitability
Gross Margin 65.40
EBIT Margin 26.50
Profit Margin 16.70
Recent Price 6.76
52 Week High 13.25
52 Week Low 4.50
Avg. Daily Vol. (Mil) 0.27
Beta (3 year) 0.00
Share Related Items
Mkt Cap (Mil) 339.00
Shares Out (Mil) 50.15
Float (Mil) 41.08
Dividend Information
Yield % 0.00
Annual Dividend 0.00
Payout Ratio 0.00
Financial Strength
Quick Ratio 9.80
Current Ratio 11.90
LT Debt/ Equity 0.00
Total Debt / Equity 0.00
Valuation Ratios
Price Earnings 35.60
Price/Sales 6.09
Price/Book 3.10
Price/Cash Flow 33.80
Per Share Data
Earnings 0.19
Sales 1.11
Book Value 2.18
Cash Flow 0.2

I might get hurt on this one in the short term but long term this is going to be a big winner. I own this for my real portfolio on a cost basis of 10.23. It has no publicly traded competitors and water destilation will be huge as the population around the world expands and drinking water becomes more and more scares.

I bought this immediately after its IPO. Good business and technology we will see grow for the future. Company also has strong international base so it will weather any US troubles well.

Good IPO's that survive while being initiated in bear markets have to be something special that finds a market niche. Energy Recovery has a great technology in water desalination that provides much more energy efficient processing of sea water. This will be extremely important where fresh water is needed, and this technology is saving millions in operating costs. ERII products have saved customers an estimated $352 million in operating costs for desalination, which equates to 500 MW of energy.

I'm all for science paving the way for great companies, and this is no exception. Since it's inception July 2nd this year, the stock has performed very well because it's not bogged down by financials.

I give this a very steady outlook for the future as energy prices continue to stay high and companies look to restructure their plants.

Water desalination is now cheaper and more reliable! Can you hear California projects coming on board? This technology should/will be used world-wide and make this propriatary technology extremely profitable.

Read spec and numbers look good. Important application to daily needs which will be ever growing as we waste what we need. Both energy and water are necessities, not luxuries, and in times of survival, people tend toward the basics, and away from luxuries.

zzzzzzzzzzzzzzzzz

Osmotic membranes, eh? There's a few good market offerings for them now but this one looks promising enough to wager a little on. Restaurants and hotels offer steady demand for them and they are expanding into the home market in a few areas with pretty filthy water.