Finally, an IPO worth talking about
Posted
Jul 10 2008, 02:53 PM
by
Kim Peterson
Rating:
We've been stuck in one of the bleakest IPO periods in recent history. At least Energy Recovery is there to give us hope. Shares of the water desalination specialist have risen 32% since the company's July 1 debut to $11.43.
This is a company you want to root for, and after reading Energy Recovery's prospectus I look forward to seeing where it goes from here. The company focuses on reverse osmosis for sea water, which uses high pressure to push sea water through filters and turn it into fresh water. Desalination has been too expensive and energy-sapping to be feasible for many countries, but that's changing. There are 20 desalination plants proposed for California, and cities in Europe and Australia are building them, according to the Economist.
Energy Recovery makes a device that recycles most of the energy used to pressure the water, and says its system cuts overall energy use by 60% compared to a typical desalination system. The company has shipped 4,000 of its devices, and makes almost all of its money from these sales. Energy Recovery had $35 million in sales last year, up from $20 million the year before and $11 million in 2005. It posted a small profit in those three years as well.
The company acknowledges some risks. It needs the desalination market to continue to grow in order to survive. It counts on a few customers for most of its revenue. And it's a one-trick pony, making all of its revenue from the sales of one device.
More than 97% of Earth's water is undrinkable, and the demand for fresh water is growing. If Energy Recovery can address this market with a long-term and carefully-planned strategy, it could help solve a global problem.
Disclosures: I don't own any shares of the companies discussed in this post.
