Tuesday, February 25, 2014

Water Company No Longer Underwater

After two years underwater, Flexible Solutions (FSI:  NYSE Amex) has posted five consecutive quarters of positive cash flow.  Revenue had remained flat over the past three years or so, but in the most recent twelve months sales have ramped to $16.2 million.  Management has been deft enough to convert a few more of its sales dollars to cash.

Flexible Solutions earns most of its living from sales of water conservation products.  HEAT$AVR slows the evaporation of water and allows water to retain a higher temperature for a longer period of time.  It is marketed to owners of swimming pools who want to reduce the energy required to maintain pool water temperature.  Heat$avr is dispensed automatically with the company’s proprietary apparatus branded Eco$avr.  WATER$AVR slows water loss in large bodies of water such as irrigation canals, aquaculture, and reservoirs.

What might be even more interesting in the Flexible Solutions story are the company’s biopolymer technologies. FSI scientists use L-aspartic acid  -  a nonessential amino acid found in abundance in plant proteins  -  to make biodegradable, water-soluble solutions.  These biopolymers have applications as ingredients in detergents, water treatment and crop enhancement products. 

Unfortunately, the improving cash flow picture has not impressed investors.  Over the last three years the stock see-sawed its way down to a 52-week low of $0.68 before recovery to the present price level just above $1.00.  Granted it is not an easy argument to pay more than the current multiple of 24.4 times trailing operating cash flows for Flexible Solutions shares.

Still Flexible Solutions is a good company to keep in your radar screen.  As clean water supplies become more costly, the cost of conservation treatments will become justifiable.  I imagine there are some farmers in California these days that are looking differently on the cost of water treatment and crop enhancement products that could aid crop yields on less water.   

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


1 comment:


Companies thats are in the business of recycling water have great potential.