Water handling and recycling company Aris Water (NYSE:ARIS) reported Q3 CY2024 results topping the market’s revenue expectations , with sales up 12.5% year on year to $112.3 million. Its non-GAAP profit of $0.34 per share was also 12.4% above analysts’ consensus estimates.

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“Aris had an exceptional third quarter as we continued to grow our produced water volumes, increased our recycled water sales, and maintained our strong margins. As we anticipated, our capital investment to support these increased activity levels was primarily deployed in the first half of the year and our capital spending in the third quarter declined significantly. We continue to experience steady volume growth and increasing cash generation. We anticipate a strong finish to the year and are extremely proud of our team’s efforts and results,” said Amanda Brock, President and CEO of Aris.

Company Overview

Primarily serving the oil and gas industry, Aris Water (NYSE:ARIS) is a provider of water handling and recycling solutions.

Air and Water Services

Many air and water services are statutorily mandated or non-discretionary. This means recurring revenues are often earned through contracts, making for more predictable top-line trends. Additionally, there has been an increasing focus on emissions and water conservation over the last decade, driving innovation in the sector and demand for new services. On the other hand, air and water services companies are at the whim of economic cycles. Interest rates, for example, can greatly impact manufacturing or industrial processes that drive incremental demand for these companies’ offerings.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Aris Water’s sales grew at an incredible 25.8% compounded annual growth rate over the last four years. This is a great starting point for our analysis because it shows Aris Water’s offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Aris Water’s annualized revenue growth of 17.5% over the last two years is below its four-year trend, but we still think the results were good and suggest demand was strong.

We can better understand the company’s revenue dynamics by analyzing its sales volumes, which show how many products it was moving. Over the last two years, Aris Water’s sales volumes averaged 10.3% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Aris Water reported year-on-year revenue growth of 12.5%, and its $112.3 million of revenue exceeded Wall Street’s estimates by 8.6%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and illustrates the market thinks its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.

Aris Water has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Aris Water’s annual operating margin rose by 21.2 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Aris Water generated an operating profit margin of 25.2%, up 2.9 percentage points year on year. The increase was encouraging, and since its gross margin actually decreased, we can assume it was recently more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Aris Water’s EPS grew at an astounding 102% compounded annual growth rate over the last four years, higher than its 25.8% annualized revenue growth. This tells us the company became more profitable as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.

For Aris Water, its two-year annual EPS growth of 38.6% was lower than its four-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Aris Water reported EPS at $0.34, up from $0.19 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Aris Water’s full-year EPS of $0.84 to grow by 66.9%.

Key Takeaways from Aris Water’s Q3 Results

We were impressed by how significantly Aris Water blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 1.9% to $16.92 immediately following the results.

Indeed, Aris Water had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.