Long-time readers of this column know about my affinity for investment themes. Perhaps you could think of it as market sector investing, but I find it useful to consider investment themes as a way of finding the market’s best speculative opportunities.
Over the last year, we’ve talked about many companies that fall under the alternative energy investment theme. It’s a phrase that’s now popular in the media. There is a related sub sector of the alternative energy investment theme and I think it’s one that will really do well over the next decade.
I call this sector environmental control. The environmental control investment theme has real staying power and most importantly, is viewed positively by the investment community with increasing interest. In my view, any balanced portfolio of stocks needs to have at least one environmental control investment opportunity. It is the industry of the future along with alternative energy.
Not too long ago, I came across a very interesting super-micro-cap company that operates in the environmental control business. Still at an early stage of development, ADA-ES Inc. (NASDAQ/ADES), which is based in Littleton, Colorado, sells specialty chemicals that mitigate the environmental impact from electric power and industrial companies. Products include: mercury control systems, activated carbon sorbents, mercury emission reduction technologies, flue gas conditioning equipment and chemicals, and combustion aid chemicals and services.
The company also provides consulting services to assist utilities in planning and implementing strategies to meet government emission standards. Policy makers are increasingly stringent in legislating reductions in sulfur dioxide, nitrogen oxide, particulates, and mercury.
In its first quarter ended March 31, 2006, ADA-ES’s revenues grew 68% to $3.6 million. Operating income was a modest $164,000, up from $55,000. Net income grew to $238,000, or $0.04 per diluted share, up from $95,000, or $0.02 per diluted share, in the comparable quarter.
The company’s recent sales growth was due to strength in sales of its mercury emission control products. So far, the company estimates it will grow by approximately 35% this year.
I think ADA-ES is a company to put on your radar screen. The company is still very small, but if it can get its revenues over the $50 million benchmark in a profitable manner over the next few years, the company’s future looks very bright.
Keep the environmental control investment theme in the back of your mind. It’s a fundamental investment theme with real staying power.