Hi there,
H2O Innovations is an interesting company - it provides water treatment solutions for municipal, energy and natural resource customers. It also operates worldwide, which gives it a nice level of diversification.
A quick look at its 5-year chart however, and you see a company that has been stuck in neutral. This is somewhat surprising considering revenue has grown at an annual average of 27.6% over the past five years. In fiscal 2020 (which just ended), revenue jumped by 13.3% to $118 million. This is likely to do with the fact that the company struggles with profitability. In 2020, it once again posted a net loss of $0.06 per share after booking impairment charges. In 9 of the past 12 quarters it has missed earnings estimates.
The other thing I like about the company is that recurring sales accounts for 86.2% of revenue. This leads me to believe that those that use the product, are happy with it and are repeat customers. Granted, a good portion of this growth was attributed to the Genesys acquisition. In 2020 it also generated strong cash flow which enabled it to reduce its debt load. With a D/E of only 0.3, the company is it strong financial position.
On a consolidated basis, its backlog is $125.4 million, which is more than 1.06 backlog to revenue ratio. This is decent, and a ratio above 1 is preferable. Post-quarter, it also announced another acquisition, that of Gulf Utility service for $3.7M. Gulf services 40 municipal and private customers and booked $6.75M in revenue last year. It also announced another project win, which adds $5.1M to its backlog.
From a valuation perspective it looks pretty decent as well. It is trading at only 1.7 times book value, 0.9 times sales and an EV/EBITDA ratio of 1.02.
Overall, I find it to be a decent little company. As a microcap however, it may be prone to considerable volatility and it seems to consistently underperform analysts expectations. Something to consider.
mat