Evoqua Water Technologies provides water treatment equipment and services; like filter press, intake rebuilds, and electrocatalytic services, as well as sludge dryers, digester covers, captivator systems, and other related technologies to the industrial, commercial, and municipal water infrastructures.
AQUA stock is a
recent IPO and it behaved as many recent IPOs do. First it goes down and then
AQUA’s business is
a two-tier business, including both services and products. Growth has been
steady and stable over the past years. Expected growth for 2020 is between 1%
Growth in revenues
for AQUA hasn’t been stellar but the company became free cash flow positive,
which is always good.
forecasts future growth to be between 3% and 5% but given the number of
acquisitions they make, growth might even be faster. In 2019 the company
acquired ProAct, IsH20TOP, PureWater and 60% of Frontier water systems.
delivered $90 million of free cash flows in 2019 but also $34 million in restructuring
costs, $20 million in share compensation to management plus $20 million in
other losses and expenses.
AQUA looks like something that could be a good business, but the management is making a mess of their financials. Everything is adjusted, from EBITDA, earnings to cash flows and they do that year by year. This makes me think they are not really there to reward shareholders as much they are there to reward themselves.
However, if they do
well, keep growing and improve margins, the market might rerate this like it
has been the case with other similar stocks like Waste Management, but it is
too much of a long-shot for me.
Another issue is the frightening debt levels where the debt is higher than the tangible assets. Tangible assets are $1 billion while total debt is $1.3 billion. Actually, AQUA’s stock tangible book value is negative.