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Market capitalization: approx. € 788 million

Current share price: € 15.64 (as at October 24, 2025)

$ERII (+1,3%) (Energy Recovery Inc.) is one of those engineering stocks that has long operated away from stock market attention and is suddenly at the center of a megatrend. The Californian specialist develops systems that minimize energy losses in fluid-based processes - a technical niche topic that is becoming massively more important in the wake of decarbonization, energy efficiency and water scarcity.

The principle is simple but highly efficient: energy is lost as pressure in industrial processes. Energy Recovery uses this pressure to recover it via closed systems - whether in desalination plants, CO₂-based cooling circuits or heat pumps. The company thus represents the quiet, engineering-driven side of the energy transition.

The share is valued according to the 10B model, which combines technological quality, market potential, management performance, financial strength and risk asymmetry to identify small but potentially multipliable growth stocks.

1. business model - 17 / 20

The foundation of the business model is the proprietary Pressure Exchanger, a technology that transfers kinetic energy between high and low pressure streams. The system has long been the industry standard in seawater desalination - energy requirements can be reduced by up to 60 %.

Energy Recovery generates the majority of its revenue from hardware sales and service contracts, but is gradually expanding the technology to new industries. These include CO₂ refrigeration systems, industrial heat recovery and process gases. This modularity makes the business model more scalable and less cyclical.

With gross margins of over 70% and stable cash flows, ERII is one of the most profitable providers in the energy efficiency sector.

2. market & growth potential - 16 / 20

Energy recovery addresses several global growth trends in parallel. Water scarcity and urbanization are driving the expansion of desalination plants - a market with an annual volume of over USD 10 billion. At the same time, the decarbonization of industry is accelerating the transition to efficient, CO₂-based heat pump and cooling systems.

The total addressable volume of the segments in which ERII is active is between 15 and 20 billion US dollars annually, while current sales are around 125 million US dollars. This shows how much scaling potential there is in the business model.

Growth will remain project-driven in the short term, but structurally robust in the long term - driven by political and economic efficiency targets worldwide.

3rd Technological Position & Moat - 18 / 20

Energy Recovery has a clearly defined technological moat. Over 500 patents protect key components and the PX technology is regarded as the global benchmark in desalination.

The real capital lies in the engineering expertise: the understanding of complex pressure and fluid mechanics is deeply rooted and almost impossible to copy. This specialization gives ERII an edge that goes beyond pure hardware - a platform that physically addresses energy losses, not just measures them on the software side.

Relevant listed benchmarks are:

• $XYL (+0,1%) (Xylem Inc.) - US specialist in water technologies, similarly high-margin but much broader-based.
• $VIE (-0,45%) (Veolia Environnement) - French infrastructure group with a focus on desalination and recycling, but with less technological specialization.
• $DHR (+0,06%) (Danaher Corp.) - global technology group with a focus on environmental and process analytics, more systemic than focused.

This peer group shows that Energy Recovery occupies a technological niche where physical efficiency is the true competitive advantage.

4. management & capital allocation - 14 / 20

David Moon has led the company since January 2025. He took over from Robert Mao, who had prepared the strategic expansion into new applications in 2023/24. Moon, previously Chief Operating Officer, brings operational experience and a clear focus on scaling.

The balance sheet is debt-free and the cash position is over 100 million US dollars. Research and development are financed entirely from cash flow - an indicator of solid capital discipline. Moon pursues a pragmatic approach: less theory, more implementation. The next strategic step is to accelerate the market penetration of the new CO₂ technologies.

This combination of technical depth and financial prudence creates an attractive foundation for sustainable growth.

5. opportunity-risk profile - 15 / 20

With an expected P/E ratio of around 34 (2025e), the share appears ambitiously valued at first glance, but the combination of a high margin, stable balance sheet and structural tailwind speaks for itself.

The risk lies in the speed of scaling. If the transition from desalination to new segments is slower than planned, there is a risk of phases of operational stagnation. In the medium term, however, the opportunity for Energy Recovery to address several vertical markets with the same technology and thus multiply its sales leverage outweighs this risk.

Overall score and classification

After evaluation in the 10B model, Energy Recovery achieved 17 points for business model, 16 for market and growth, 18 for technological position, 14 for management and 15 for opportunity-risk - an overall score of 80 points. It combines technological precision, high margins and conservative balance sheet management in a market with structural tailwinds.

I plan to build up an initial position in the near future. A small technology stock with real leverage on efficiency, water and decarbonization - exemplary for the 10B universe.