Graham (NYSE:GHM) & Energy Recovery (NASDAQ:ERII) Critical Survey

Graham (NYSE:GHM) and Energy Recovery (NASDAQ:ERII) are both small-cap industrials companies, but which is the superior stock? We will compare the two companies based on the strength of their risk, valuation, profitability, earnings, dividends, analyst recommendations and institutional ownership.

Analyst Ratings

This is a breakdown of current recommendations for Graham and Energy Recovery, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Graham	0	3	2	0	2.40
Energy Recovery	1	3	0	0	1.75

Graham presently has a consensus target price of $132.50, indicating a potential upside of 51.15%. Energy Recovery has a consensus target price of $11.67, indicating a potential upside of 71.69%. Given Energy Recovery’s higher probable upside, analysts clearly believe Energy Recovery is more favorable than Graham.

Risk & Volatility

Graham has a beta of 1.05, suggesting that its stock price is 5% more volatile than the S&P 500. Comparatively, Energy Recovery has a beta of 0.9, suggesting that its stock price is 10% less volatile than the S&P 500.

Earnings and Valuation

This table compares Graham and Energy Recovery”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Graham	$245.29 million	4.20	$12.50 million	$1.04	84.29
Energy Recovery	$134.99 million	2.59	$22.96 million	$0.28	24.27

Energy Recovery has lower revenue, but higher earnings than Graham. Energy Recovery is trading at a lower price-to-earnings ratio than Graham, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Graham and Energy Recovery’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Graham	4.53%	11.09%	5.17%
Energy Recovery	12.72%	8.25%	7.24%

Insider & Institutional Ownership

69.5% of Graham shares are held by institutional investors. Comparatively, 83.6% of Energy Recovery shares are held by institutional investors. 2.4% of Graham shares are held by insiders. Comparatively, 2.5% of Energy Recovery shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Summary

Graham beats Energy Recovery on 8 of the 14 factors compared between the two stocks.

About Graham

Graham Corporation, together with its subsidiaries, designs and manufactures fluid, power, heat transfer, and vacuum equipment for chemical and petrochemical processing, defense, space, petroleum refining, cryogenic, energy, and other industries. It offers power plant systems, including ejectors and surface condensers; torpedo ejection, propulsion, and power systems, such as turbines, alternators, regulators, pumps, and blowers; and thermal management systems comprising pumps, blowers, and drive electronics for defense sector. The company also provides rocket propulsion systems consisting of turbopumps and fuel pumps; cooling systems, which include pumps, compressors, fans, and blowers; and life support systems that comprise fans, pumps, and blowers for space industry. In addition, it offers heat transfer and vacuum systems, including ejectors, process and surface condensers, liquid ring pumps, heat exchangers, and nozzles; power generation systems, such as turbines, generators, compressors, and pumps; and thermal management systems comprising pumps, blowers, and electronics for energy sector. Further, the company offers heat transfer and vacuum systems consisting of ejectors, process and surface condensers, liquid ring pumps, heat exchangers, and nozzles for chemical and petrochemical processing industry. The company also services and sells spare parts for its equipment. It sells its products directly in the United States, the Middle East, Canada, Asia, South America, and internationally. Graham Corporation was founded in 1936 and is headquartered in Batavia, New York.

About Energy Recovery

Energy Recovery, Inc., together with its subsidiaries, designs, manufactures, and sells energy efficiency technology solutions in the Americas, the Middle East, Africa, Asia, and Europe. The company operates through Water and Emerging Technologies segments. The company offers high and low pressure, and ultra pressure exchangers; AT and LPT hydraulic turbochargers; and high-pressure feed and circulation booster pumps for use in seawater and brackish desalination, and wastewater treatment. It also provides PX G1300, which reduces energy consumption and operating costs of carbon dioxide-based refrigeration systems; and spare parts, as well as repair, field, and commissioning services. It sells its products under the ERI, PX, Pressure Exchanger, PX Pressure Exchanger, Ultra PX, PX G, PX G1300, PX PowerTrain, AT, and Aquabold brands to original equipment manufacturers, supermarket chains, cold storage facilities, refrigeration system installers, and other industrial users; aftermarket customers consisting of desalination plant owners and operators; and project developers, end-users, and industry consultants, as well as engineering, procurement, and construction firms. Energy Recovery, Inc. was incorporated in 1992 and is headquartered in San Leandro, California.