Can A "Supercritical" Water Stock Tap Into a $250 Billion Market?

When it comes to hot stocks, companies operating in the water industry often aren’t top of mind. However, for an innovative micro-cap company, that’s exactly the current situation.

374Water SCWO is up nearly 47% over the past three months and is still trading at less than two dollars per share. The company is outperforming the industrial sector this year with shares up 21%. Meanwhile, the Industrial Select Sector SPDR Fund XLI has returned a total of 17% in 2024.

Only one Wall Street analyst has placed a price target on the undercovered stock. However, that analyst is bullish, indicating a potential upside of 46%. I’ll dive into what exactly this company does, its financials, and potential growth catalysts that are important to its success.

374Water’s “Supercritical” Water Treatment Product and Current Financials

374Water’s product is the AirSCWO, a wastewater treatment technology. The company is developing different versions of the product based on the amount of waste they can process. The system pressurizes and heats water above 374 degrees Celsius so that it reaches its “supercritical phase." In this phase, water exhibits the properties of being both a liquid and a gas.

When combined with air, the system is able to "convert any organic material," resulting in clean water afterwards. Processing the water in this way generates a significant amount of heat that can power the system further. This allows the system to power itself to a certain extent once it is running.

However, it still takes a significant amount of energy to heat the waste to the water’s supercritical phase initially. The system can process both hazardous and non-hazardous materials, converting them into non-polluting substances.

The company is still in the process of developing its AirSCWO system for commercialization. Thus, the company is similar to a biotech stock that has yet to have any drugs approved by the Food and Drug Administration (FDA). The firm currently has no significant revenue.

The company lost about $9 million in cash from operations in each of the last several quarters. It will likely need to issue more shares to continue operating. Currently, the company only has $5.1 million in cash and equivalents on its balance sheet and has no debt.

In its latest call, the company's CEO, Chris Gannon, said the firm should see more revenue from various tests and demos it will perform. However, Gannon went on to say the firm will need to raise capital and implied that both debt and stock issuance are options.

AirSCWO First Deployment in Central Florida Has Big Implications

Although the company’s AirSCWO system is not yet available for purchase, it is in the process of on-site testing. The company recently deployed the technology in Orlando, Florida. The company agreed with the City of Orlando to test its technology at the Iron Bridge Water Pollution Control Facility. The demo will last seven months. The firm will collect data to prove its product works. It will then try to sell the systems to the city, which wants to upgrade its treatment facilities.

As the company’s first deployment of its system, the importance of the success of the Orlando project is massive. Following the successful demonstration, the City of Orlando announced its intention to upgrade to the company’s AS30 systems and has already secured financing, according to 374Water.

The company also has similar demonstrations planned with Orange County Sanitation to begin in early 2025. They also intend to buy the AS30 system if the demonstration is successful. This demonstration will take around 12 months to complete.

374Water Has a Huge Market Opportunity If It Can Capitalize

The company currently claims a pipeline of opportunities worth $1.6 billion. So, significant amounts of revenue may not be too far away if these demonstrations are successful. If these municipalities adopt the technology, others may be more likely to buy or explore 374Water's products. The company sees a global market size of $250 billion, a massive potential opportunity if the products catch on.

Still, what constitutes a “successful” demonstration is uncertain. The company said in its Aug. 15 call that the product integration into the Orlando facility would take about four to six weeks. After the systems are operational, they will begin giving updates.

Based on that timeline, updates should come relatively soon. At this time, it’s a wait-and-see game for updates on the Orlando project, which I will be watching for.

The article "Can A "Supercritical" Water Stock Tap Into a $250 Billion Market?" first appeared on MarketBeat.