Energy Recovery Rides Clean Water Wave

Also of concern is that Energy Recovery says it doesn't necessarily have long-term relationships with clients. In the most recent quarter, Spain's Geida accounted for 49% of net revenue, while Geida and Inima, another Spanish company, made up 48% in the year-ago quarter.

Energy Recovery's reverse-osmosis desalination technology is among the most efficient available -- especially when measured against thermal desalination that relies on steam -- and with only one moving part they're likely to be relatively durable.

But with developing technologies there is always the risk that some rival will start nipping at your heels. The company says its chief competitors are Switzerland's Calder, Fluid Equipment Development, and Pump Engineering.

However, Energy Recovery's clients like its products enough that they have been pressuring it to develop one that can handle higher volume, the company says. So it's developed the PX-1200 Titan, which can offer a five-fold increase in water-flow capacity over the PX.

It's also trying to improve its presence in the U.S., testing its devices in a plant in Carlsbad, Calif., that is expected to be the largest reverse-osmosis plant in the country.

In many ways, Energy Recovery has all the earmarks of a company that shrewd investors like to see in an IPO candidate: experienced, prudent management, a good history (16 years) developing an emerging technology; and a realistic view of both the hazards and promise of a rapidly developing market.

The drawback -- a reliance on a large contracts that can cause its earnings to vary from quarter to quarter -- isn't huge, but it's one investors should keep in mind. This stock is likely to be a rocky ride, but those who can weather it might be happy with the long-term results.

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