NEW YORK (TheStreet) -- Shares of Energy Recovery (ERII - Get Report) were gaining 193.5% to $7.22 with heavy trading volume on Tuesday after the pressure energy technology company signed a 15-year licensing deal with Schlumberger (SLB).
The new agreement gives Schlumberger exclusive rights to Energy Recovery's VorTeq hydraulic pumping system, which the company says is the "first hydraulic fracturing manifold ('missile') built to isolate hydraulic fracturing pumps from abrasive proppants that cause pump failure."
Schlumberger will pay Energy Recovery $75 million immediately for the exclusivity fee. The oil field services company will also pay two separate $25 million milestone payments (a total of $50 million) subject to Energy Recovery satisfying certain key performance indicators, which are expected to occur in 2016.
"We are thrilled to be working with Schlumberger, the world's largest oil field services company, and a leading supplier of technology associated with hydraulic fracturing solutions," Energy Recovery President and CEO Joel Gay said in a statement. "We believe VorTeq is a paradigm shift for the hydraulic fracturing industry as it significantly reduces maintenance costs associated with pumping downtimes and provides considerable redundancy efficiencies."
About 5.7 million shares of Energy Recovery were traded by 9:49 a.m. Tuesday, well above the company's average trading volume of about 111,000 shares a day.
TheStreet Ratings team rates ENERGY RECOVERY INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
We rate ENERGY RECOVERY INC (ERII) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Machinery industry and the overall market, ENERGY RECOVERY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$6.97 million or 221.31% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- ERII's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 35.00%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- ENERGY RECOVERY INC has improved earnings per share by 33.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ENERGY RECOVERY INC reported poor results of -$0.36 versus -$0.07 in the prior year. This year, the market expects an improvement in earnings (-$0.23 versus -$0.36).
- The gross profit margin for ENERGY RECOVERY INC is rather high; currently it is at 61.71%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -31.73% is in-line with the industry average.
- You can view the full analysis from the report here: ERII