Since freshwater is scarce for many countries worldwide, water desalination stocks like H2O Innovation make an excellent long-term investment.
The importance of water desalination
Water desalination stocks are crucial because they give many countries safe and reliable water security. In addition, only 1% of the water on earth is fresh, making desalination more common worldwide.
The demand for freshwater will only increase going forward, and the available freshwater supplies are not sustainable. In addition, climate change is causing droughts and floods, so desalination can provide safe water using seawater which covers around 70% of the earth’s surface.
Companies like H2O Innovation have been involved with seawater desalination for over two decades using reverse osmosis technology. While this technology is new to North America, many arid regions like the Middle East and Africa have been using desalination for decades.
What is H20 Innovation?
H2O Innovation Inc. is a water solutions company that operates in three segments:
- Water Technologies and Services
The company provides services and equipment to customers of wastewater, municipal and industrial water, water reuse, and desalination.
- Specialty Products
H2O Innovation manufactures and supplies chemicals, engineered products, and consumables for the global water treatment industry in its Specialty Products segment.
- Operation and Maintenance
The company is a leader in wastewater treatment systems, public works management, and collection and distribution system maintenance within this segment.
H2O Innovation’s financial status
H2O Innovation trades on the Toronto Stock Exchange under (TSX: HEO) and on the top tier OTC exchange in the US, (OTCQX: HEOFF) and has a market cap of about CAD $198 Million, with 51.9 Million in revenue for the quarter ending March 31, 2022 with gross profit of $14.1 Million with $1.3M in net earnings. H2O Innovation also has a P/E ratio of 78.6, which is high enough for investors to consider it a growth stock. The combination of a low market cap and a high P/E ratio tells investors that the company has the potential to grow massively. A high P/E ratio means the company is potentially overvalued, but many growth stocks are not profitable and therefore do not have a P/E ratio.
Revenue growth
The company proves that it is a growth stock with consistent revenue growth each year, and since 2014, H2O Innovation has effectively increased its revenue every year, demonstrating the company is retaining customers and acquiring new ones.
Additionally, all three business segments experienced revenue growth, demonstrating that all areas of the company are growing. H2O Innovation’s recurring revenues also remain strong at 83% as of Q3-FY2022.
In the news
In early August, H2O Innovation announced that the company has renewed two operation and maintenance contracts totaling approximately CAD $18.3 Million and has also won new projects in the State of Texas. President and CEO of HEO was quoted “Growth is the lifeblood of any organization, so we are excited about the new opportunities in the Southwest Region. These new contracts will see H2O Innovation operate several water and wastewater utilities and service residential and commercial customers for an initial term of two years. At the same time, renewing contracts with the City of Canton, Georgia and the City of Littleton, New Hampshire, is in keeping with our plan of building long-term relationships with our clients. Our O&M partnership with the City of Canton began in 2006 and has evolved significantly considering the tremendous growth of the city over the last years”. HEO currently has a backlog of $137.4 Million.
The bottom line for H2O Innovation
Companies like H2O Innovation strive to make the world a better place while also making a profit for investors. Billions of people worldwide lack access to fresh water, making water desalination stocks a great way to make a positive social impact with your investing.
The combination of water reuse and desalination is an effective combo to provide and maintain freshwater supplies worldwide. Fortunately, companies like H2O Innovation have the skills and technology required to provide high-quality desalination systems for any application.
Impact investing with high return potential
Water desalination stocks are a great place to invest your money if you want to make a positive social impact within your investment portfolio. Additionally, H2O Innovation is a company with massive return potential due to its small market cap and high revenue growth.
H2O Innovation is retesting the resistance line of May 17th at $2.27 and may continue to rally as the stock continues to break out to the upside, as additional news should carry the momentum forward.
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