Energy Recovery Inc. Common Stock (ERII)

FairStock Score: 48/100 — MIXED

Key Financials

Strengths

• Generates $9 million in annual free cash flow (1.5% yield on market cap)
• Strong Piotroski F-Score of 8/9 indicating robust financial health across profitability, leverage, and efficiency metrics
• Solid return on equity of 11.0% above cost of capital
• Conservative balance sheet with debt-to-equity of just 0.05, providing financial flexibility
• Altman Z-Score of 16.2 confirms minimal bankruptcy risk and strong solvency

Concerns

• Trades significantly above Graham Number ($6) with negative 82% margin of safety—limited downside protection
• Revenue declining at 0.3% year-over-year signals potential demand weakness or market share loss
• No meaningful dividend despite modest growth—total return depends entirely on multiple expansion

AI Analysis

Energy Recovery Inc. Common Stock is a micro-cap industrials company valued at $583 million. The business generates $135 million in annual revenue with a 19.9% net margin and $9 million in free cash flow. From a quality standpoint, Energy shows near-perfect Piotroski F-Score of 8/9 indicating exceptional financial health and Altman Z-Score of 16.2 confirms fortress-level solvency. On valuation, the stock is trading at a premium 26.2x earnings, with trades above its Graham Number with a negative 82% margin. Growth dynamics show revenue growing at -0.3% and profit growth of 14.7%. Our composite FairStock Score of 48/100 reflects mixed fundamentals overall. Investors should weigh the business quality against the current price and their own margin of safety requirements.

Bull Case

Improving fundamentals and sector tailwinds could drive meaningful earnings growth, compressing the effective multiple for patient investors. With $9 million in annual free cash flow (1.5% yield), management has ample capital for buybacks, dividends, or accretive acquisitions.

Bear Case

Macro headwinds or sector-specific disruption could pressure margins, particularly if competitive intensity increases in the industrials space. Regulatory changes, input cost inflation, or demand normalization represent underappreciated risks that could materially impact forward estimates.

Data from SEC filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer