Water Intelligence (LON:WATR) is a high flying water leak prevention company with global ambitions and some eye-catching growth rates. Five-year compound annual growth rates (CAGRs) for revenue, net profit, and operating cash flow per share are 35%, 35.1%, and 42.5% respectively.

In fact, just about the only thing growing faster than the group’s revenue is its share price, up some 242% over the past twelve months. There’s no doubting the trading momentum here but the recent multiple expansion means there is precious little room for error.

The stock was pitched to the Stockopedia Investment Club on Wednesday April 21st 2021 at 806p.

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Is this a hidden gem on AIM, with genuine longer term compounding potential? Or, at 48.7x forecast earnings, are we just getting excited about an overpriced franchise network of plumbers?


Summary

Bull points: profitable, high margin corporate/franchise model; increasing growth capex; small, growing player in global structural growth market (water conservation); intellectual property, trademarks, and patents; ESG trends; high QM stock; clear strategy; acyclical essential services provider.

Bear points: high valuation multiples and limited scope for multiple expansion; possible future disruption to clean water issues; growth rates may slow; international expansion could prove trickier than expected.


Profile

About the Stock:

Water Intelligence is a part of the Machinery, Equipment & Components industry group, which belongs in the Industrials sector.

The company was incorporated in England and owns the entire issued capital of American Leak Detection (ALD). This is Water’s principal trading subsidiary.

ALD provides non-invasive water leak detection and remediation services in the USA, Canada, Australia, Spain, Belgium and other countries. Unlike traditional plumbing methods, ALD leak specialists locate leaks without the breaking of walls or floors, allowing for reduced repair costs and better water conservation.

A share price of 929p and an exchange market size of 500, about £4,645k worth of stock can be reliably traded. A spread of 124bps should also be taken into account.

Liquidity issues aside, Water Intelligence is classified as a Speculative Small Cap High Flyer with strong exposure to the Quality and Momentum factors. Its StockRank is 74 and its QM Rank is 96.

About the Opportunity:

This is a small, niche, fast growing business that is being neglected by the market.

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Its services are required throughout the…

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