Evoqua's Fat Profits Paying for New R&D Facility

Evoqua Water Technologies (AQUA:  Nasdaq) reported sales and earnings today for the fiscal third quarter ending June 2021, clocking in commendable sales growth but confessing a slip in earnings.  Recurring revenue has also grown on higher service volumes.  Sales totaled $369.7 million in the quarter, providing $13.2 million in net income or $0.11 per share.  The quarter performance brought sales in the trailing twelve months to $1.4 billion and net income to $55.9 million or $0.46 per share.

The company continues to find market opportunity for its water treatment solutions and demand has been sufficiently robust to price for profitability.  The company earned a gross profit margin of 32.5% on its product sales in the twelve months ending June 2021.  That profit margin represents a 100-basis point improvement over the margin in the previous year and more than 300 basis points higher than two years previous.

Evoqua is probably best known for its wastewater treatment solutions for municipalities, which use both anaerobic- and aerobic-based technologies.  The global water and wastewater treatment equipment market was valued by Grandview Research at $61 billion in the year 2020.  The industry research firm also estimates the industry will grow about 4% a year through 2028.    Well-developed regulations and established infrastructure make the U.S. a dominant buyer in North America.

Evoqua’s product portfolio stretches to separation, filtration, disinfection, purification, and electrochemical systems, among other pollution abatement and water clean-up equipment needed by local governments and business alike.  Sales of membrane separation equipment accounts for as much as a fifth of the industry revenue.  Ultraviolet systems are also an important disinfection technique for municipal and commercial water.  Evoqua sales personnel can give customers competitive alternatives.

To feature its products and develop new more sustainable water treatment technologies, the company is building a new research and development facility in Pittsburg, Pennsylvania.  Evoqua management promised particular focus on man-made chemicals called polyfluoroalkyl of PFA substances that can damage the liver and immune system as well as cause birth defects.     

Evoqua’s shares have been trading with strength in the past several months, probably because many traders have also been looking at that expanding profit line.  The shares are 25% higher since the beginning of 2021.  Anyone wanting a long position in AQUA will need patience to wait for a period of weak trading conditions to dip their toes. 

 

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.