One growth stock I want to explore in more detail is Water Intelligence (LSE:WATR). Let’s take a look at whether I should buy or avoid the shares for my holdings, with a view to longer-term growth and returns.
Leak detection
The name Water Intelligence nearly fooled me into thinking the business produced smart drinking water. In fact, it is a leak detection business with plenty of years in the industry and international operations across the US, Canada, Australia, Spain, and Belgium.
So what’s the current state of play with Water shares? As I write, they trade for 565p. At this time last year, the stock traded for 1,145p. This is a 50% drop over a 12-month period.
The investment case
Let’s look at some bull aspects of Water Intelligence first. To start with, I’m buoyed by its international presence, which should help boost performance and growth. Drilling down into its specific territories, the piping infrastructure in many of these countries, such as the US and Canada, are ageing. This means that the likelihood of leaks is higher, raising demand for effective and efficient leak detection and repair services. This could serve Water Intelligence’s growth well in the coming years.
Moving onto Water’s performance historically and recently, there is a lot to like for me personally. I do understand that past performance is not a guarantee of the future. However, looking back, I can see it has grown revenue and profit for the past four years in a row. Coming up to date, last month it released a half-year report for the period ended 30 June 2022 that made for good reading. Revenue and sales increased by 44% and 12.5% respectively compared to the same period last year. Net cash also boosted its balance sheet as that increased too. From a growth perspective, this will boost initiatives, including the fact it hired more technicians as it looks to grow the business moving forward.
So to the bull case. Water Intelligence is still a relatively small fish in a large pond. Despite its international presence, there are larger, more established, and arguably better-equipped rivals out there that could dominate the market. This could negatively affect the performance and growth aspirations of Water Intelligence.
Furthermore, Water Intelligence is at the mercy of current macroeconomic headwinds. These include soaring inflation, the rising cost of materials, and recent international currency exchange volatility. Rising costs could put pressure on profit margins. For any growth stock, profit plays a key part in growing the business. In addition to this, Water’s international presence opens it up to unfavourable international currency exchange rates that could damage its balance sheet.
A growth stock I will continue to monitor
In conclusion, I have decided to keep Water Intelligence on my watch list for now. Current volatility, as well as falling investor sentiment help me come to my conclusion. There are some positives to note, including growth to date, as well as recent performance. For that reason I will keep a close eye on the wider economy in relation to its performance to see if I should change my stance down the line.
