Why Energy Recovery (ERII) Shares Are Getting Obliterated Today

What Happened?

Shares of energy recovery device manufacturer Energy Recovery (NASDAQ:ERII) fell 11.6% in the morning session after the company reported underwhelming earnings. The company posted revenue of $32 million, which was ahead of the consensus estimate of $29.94 million but still represented a 17.1% decline from the prior year. Similarly, its adjusted earnings per share (EPS) of $0.12 topped the forecast of $0.10. However, the positive top and bottom-line results were overshadowed by weaker underlying metrics. Adjusted EBITDA of $6.8 million missed analyst estimates, and the company's operating margin contracted significantly to 11.4% from 18.3% in the same quarter last year. The sharp year-over-year sales decline and shrinking profitability likely concerned investors, leading to the negative stock reaction despite the headline beats.

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What Is The Market Telling Us

Energy Recovery’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. But moves this big are rare even for Energy Recovery and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 3 months ago when the stock gained 8.4% on the news that the company announced a new $25 million share repurchase program following strong second-quarter financial results. The buyback program, which allows a company to purchase its own stock from the market, was its third in the last year, bringing the total to $105 million. Management expressed confidence in its growth strategy and its ability to generate cash. This sentiment was further bolstered by the company's second-quarter earnings, where income from operations surged 173.2% compared to the prior year. Additionally, the company reiterated its full-year 2025 guidance and noted its core desalination business proved resilient.

Energy Recovery is flat since the beginning of the year, and at $14.99 per share, it is trading 24.8% below its 52-week high of $19.93 from November 2024. Investors who bought $1,000 worth of Energy Recovery’s shares 5 years ago would now be looking at an investment worth $1,496.

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