H2O Innovation (TSX:HEO) - Share price, News & Analysis

Q: What is the Fair Price of HEO when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

HEO (CA$2.2) is trading below our estimate of [[fair value]] (CA$3.81)

HEO fundamental analysis
Snowflake Score
Valuation	3/6
Future Growth	4/6
Past Performance	1/6
Financial Health	5/6
Dividends	0/6

HEO Stock Overview

H2O Innovation Inc. designs and provides integrated water treatment solutions based on membrane filtration technology.

Rewards

Trading at 42.3% below our estimate of its fair value

Earnings are forecast to grow 53.22% per year

Risk Analysis

Large one-off items impacting financial results

Profit margins (1.5%) are lower than last year (2.8%)

Shareholders have been diluted in the past year

H2O Innovation Competitors

Savaria

TSX:SIS

CA$965.7m

Reko International Group

TSXV:REKO

CA$28.8m

ATS Automation Tooling Systems

TSX:ATA

CA$4.2b

California Nanotechnologies

TSXV:CNO

CA$3.7m

Price History & Performance

Summary of all time highs, changes and price drops for H2O Innovation
Historical stock prices
Current Share Price	CA$2.20
52 Week High	CA$2.90
52 Week Low	CA$1.75
Beta	1.08
1 Month Change	7.32%
3 Month Change	0.92%
1 Year Change	-16.98%
3 Year Change	89.66%
5 Year Change	49.66%
Change since IPO	-96.86%

Recent News & Updates

Aug 12

Getting In Cheap On H2O Innovation Inc. (TSE:HEO) Might Be Difficult

With a price-to-earnings (or "P/E") ratio of 79.1x H2O Innovation Inc. ( TSE:HEO ) may be sending very bearish signals...

May 25

What Is H2O Innovation Inc.'s (TSE:HEO) Share Price Doing?

While H2O Innovation Inc. ( TSE:HEO ) might not be the most widely known stock at the moment, it received a lot of...

Shareholder Returns

	HEO	CA Machinery	CA Market
7D	8.4%	4.5%	3.0%
1Y	-17.0%	-34.5%	0.7%

Return vs Industry: HEO exceeded the Canadian Machinery industry which returned -36% over the past year.

Return vs Market: HEO underperformed the Canadian Market which returned -0.2% over the past year.

Price Volatility

Is HEO's price volatile compared to industry and market?
HEO volatility
HEO Average Weekly Movement	5.5%
Machinery Industry Average Movement	10.6%
Market Average Movement	10.6%
10% most volatile stocks in CA Market	19.0%
10% least volatile stocks in CA Market	4.3%

Stable Share Price: HEO is less volatile than 75% of Canadian stocks over the past 3 months, typically moving +/- 5% a week.

Volatility Over Time: HEO's weekly volatility (5%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
2000	900	Frederic Dugre	https://www.h2oinnovation.com

H2O Innovation Inc. designs and provides integrated water treatment solutions based on membrane filtration technology. The company operates through three segments: Water Technologies and Services, Specialty Products, and Operation and Maintenance Services. It offers membrane filtration technology for municipal, industrial, energy, and natural resources end-users; and aftersales services, as well as digital solutions to monitor and optimize water treatment plants.

H2O Innovation Fundamentals Summary

How do H2O Innovation's earnings and revenue compare to its market cap?
HEO fundamental statistics
Market Cap	CA$198.02m
Earnings (TTM)	CA$2.52m
Revenue (TTM)	CA$167.51m

78.7x

P/E Ratio

1.2x

P/S Ratio

Is HEO overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
HEO income statement (TTM)
Revenue	CA$167.51m
Cost of Revenue	CA$121.37m
Gross Profit	CA$46.15m
Other Expenses	CA$43.63m
Earnings	CA$2.52m

Last Reported Earnings

Mar 31, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	0.028
Gross Margin	27.55%
Net Profit Margin	1.50%
Debt/Equity Ratio	35.0%

How did HEO perform over the long term?

See historical performance and comparison

We’ve recently updated our valuation analysis.

Valuation

Is HEO undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

3/6

Valuation Score 3/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for HEO?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for HEO. This is calculated by dividing HEO's market cap by their current preferred multiple.
What is HEO's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	CA$198.02m

HEO key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	1.4x
Enterprise Value/EBITDA	17.2x
PEG Ratio	1.5x

Price to Earnings Ratio vs Peers

How does HEO's PE Ratio compare to its peers?

HEO PE Ratio vs Peers

The above table shows the PE ratio for HEO vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	26.9x
SIS Savaria	50.4x	48.6%	CA$965.7m
REKO Reko International Group	14.8x	n/a	CA$28.8m
ATA ATS Automation Tooling Systems	31.7x	21.5%	CA$4.2b
CNO California Nanotechnologies	11x	n/a	CA$3.7m
HEO H2O Innovation	78.7x	53.2%	CA$198.0m

Price-To-Earnings vs Peers: HEO is expensive based on its Price-To-Earnings Ratio (78.7x) compared to the peer average (26.9x).

Price to Earnings Ratio vs Industry

How does HEO's PE Ratio compare vs other companies in the North American Machinery Industry?

Price-To-Earnings vs Industry: HEO is expensive based on its Price-To-Earnings Ratio (78.7x) compared to the Canadian Machinery industry average (14.7x)

Price to Earnings Ratio vs Fair Ratio

What is HEO's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

HEO PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	78.7x
Fair PE Ratio	35.9x

Price-To-Earnings vs Fair Ratio: HEO is expensive based on its Price-To-Earnings Ratio (78.7x) compared to the estimated Fair Price-To-Earnings Ratio (35.9x).

Share Price vs Fair Value

What is the Fair Price of HEO when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: HEO (CA$2.2) is trading below our estimate of fair value (CA$3.81)

Significantly Below Fair Value: HEO is trading below fair value by more than 20%.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is more than 20% higher than the current share price and analysts are within a statistically confident range of agreement.

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Future Growth

How is H2O Innovation forecast to perform in the next 1 to 3 years based on estimates from 9 analysts?

Future Growth Score

4/6

Future Growth Score 4/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

53.2%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: HEO's forecast earnings growth (53.2% per year) is above the savings rate (1.6%).

Earnings vs Market: HEO's earnings (53.2% per year) are forecast to grow faster than the Canadian market (8% per year).

High Growth Earnings: HEO's earnings are expected to grow significantly over the next 3 years.

Revenue vs Market: HEO's revenue (8.4% per year) is forecast to grow faster than the Canadian market (6.4% per year).

High Growth Revenue: HEO's revenue (8.4% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: HEO's Return on Equity is forecast to be low in 3 years time (9.5%).

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Past Performance

How has H2O Innovation performed over the past 5 years?

Past Performance Score

1/6

Past Performance Score 1/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

47.9%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: HEO has a large one-off loss of CA$1.6M impacting its March 31 2022 financial results.

Growing Profit Margin: HEO's current net profit margins (1.5%) are lower than last year (2.8%).

Past Earnings Growth Analysis

Earnings Trend: HEO has become profitable over the past 5 years, growing earnings by 47.9% per year.

Accelerating Growth: HEO's has had negative earnings growth over the past year, so it can't be compared to its 5-year average.

Earnings vs Industry: HEO had negative earnings growth (-39.1%) over the past year, making it difficult to compare to the Machinery industry average (-39.1%).

Return on Equity

High ROE: HEO's Return on Equity (2.8%) is considered low.

Discover strong past performing companies

Financial Health

How is H2O Innovation's financial position?

Financial Health Score

5/6

Financial Health Score 5/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: HEO's short term assets (CA$65.4M) exceed its short term liabilities (CA$35.9M).

Long Term Liabilities: HEO's short term assets (CA$65.4M) exceed its long term liabilities (CA$46.9M).

Debt to Equity History and Analysis

Debt Level: HEO's net debt to equity ratio (27.8%) is considered satisfactory.

Reducing Debt: HEO's debt to equity ratio has reduced from 36.3% to 35% over the past 5 years.

Debt Coverage: HEO's operating cash flow is negative, therefore debt is not well covered.

Interest Coverage: HEO's interest payments on its debt are well covered by EBIT (3.7x coverage).

Balance Sheet

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Dividend

What is H2O Innovation current dividend yield, its reliability and sustainability?

Dividend Score

0/6

Dividend Score 0/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Cash Flow Coverage

Dividend Yield vs Market

Notable Dividend: Unable to evaluate HEO's dividend yield against the bottom 25% of dividend payers, as the company has not reported any recent payouts.

High Dividend: Unable to evaluate HEO's dividend yield against the top 25% of dividend payers, as the company has not reported any recent payouts.

Stability and Growth of Payments

Stable Dividend: Insufficient data to determine if HEO's dividends per share have been stable in the past.

Growing Dividend: Insufficient data to determine if HEO's dividend payments have been increasing.

Earnings Payout to Shareholders

Earnings Coverage: Insufficient data to calculate payout ratio to determine if its dividend payments are covered by earnings.

Cash Payout to Shareholders

Cash Flow Coverage: Unable to calculate sustainability of dividends as HEO has not reported any payouts.

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Management

How experienced are the management team and are they aligned to shareholders interests?

1.3yrs

Average management tenure

CEO

Frederic Dugre

22.58yrs

Tenure

CA$1,165,874

Compensation

Mr. Frederic Dugre Co-founded H2O Innovation Inc. (also known as H2O Innovation (2000) Inc) in 2000 and has also been its Chief Executive Officer and President since January 2000. Mr. Dugre served as an Ex...

CEO Compensation Analysis

Compensation vs Market: Frederic's total compensation ($USD911.18K) is above average for companies of similar size in the Canadian market ($USD695.79K).

Compensation vs Earnings: Frederic's compensation has increased by more than 20% whilst company earnings have fallen more than 20% in the past year.

Leadership Team

Experienced Management: HEO's management team is not considered experienced ( 1.3 years average tenure), which suggests a new team.

Board Members

Experienced Board: HEO's board of directors are considered experienced (5.8 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: Insufficient data to determine if insiders have bought more shares than they have sold in the past 3 months.

Ownership Breakdown

Dilution of Shares: Shareholders have been diluted in the past year, with total shares outstanding growing by 5.6%.

Data	Last Updated (UTC time)
Company Analysis	2022/08/12 00:00
End of Day Share Price	2022/08/12 00:00
Earnings	2022/03/31
Annual Earnings	2021/06/30