Phoslock: Cleaning Up Or Clearing Out? (ASX: PET)

Who knew cleaning lakes and rivers could be so lucrative?

Investors in water-purifying company Phoslock Environmental Technologies Ltd [ASX:PET] have certainly reaped the reward. The stock has been on a record run in 2019, and the future is looking bright.

However, The Phoslock share price hit a brief bump in the road last week. The market didn’t take to kindly to the recent figures released by management. That is despite plenty of mentions of record sales, no debt and an enviable cash balance.

So, where did Phoslock go wrong?

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Great results, greater expectations

Net cash flow from January–June was $10.7 million. A good result for Phoslock as they aim to beat the $18.7 million worth of revenue they made last year.

So, barring any major outlier, Phoslock should be set for a record year. But there are some cracks of unease starting to show, as well.

Some investors may have concerns over the weaker second quarter. Phoslock managed just $4.7 million from April–June. A slight dip from the $6 million seen during January– March. And that’s in spite of lower costs during the second quarter, as well.

Furthermore, Phoslock hinted at increased costs in the near future. A new factory in China is going to eat into their cash reserves during the second half of the year. Just another detail that will stifle any potential profit.

Plus, the timing of the news was fairly unfortunate. It coincided right as the US and China ratcheted up their trade attacks. A situation that while outside of Phoslock’s control, will weigh on investors’ minds.

Bump in the road

In the grand scheme of things though, this seems like a minor setback. Even the share price has rebounded firmly.

After opening at $1.12 on Tuesday, the stock is back up to $1.46, at time of writing. A clear sign of the volatility and speculation surrounding the company still. But the engine for growth is still revving strong.

As Chairman, Laurence Freedman notes:

Needless to say, I am delighted at the rapidly growing confidence that water authorities and governments in many countries are showing in Phoslock the product, in Phoslock Environmental Technology (PET) the Company and in our proven ability to plan and successfully execute complex and diversified projects.

Indeed, it is the ongoing production of their product (phoslock) that will be fascinating. A clay-like substance that uses lanthanum as its active ingredient. One of the many rare earths that are irreplaceable in countless products. To learn more about rare earths and the demand for them, check out this free report.

As for Phoslock, keep an eye out for their audited results on 23 August. It offer up a fresh perspective on what the future entails for investors.

Regards,

Ryan Clarkson-Ledward

PS: If you’re looking to source small-caps with big potential like PET, then make sure you check out our brand-new Money Morning report: ‘Three Small-Cap Stocks to Own Right Now’. Get your free copy here.

 


Ryan Clarkson-Ledward is one of Money Morning’s junior analysts. Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects. Ryan’s primary focus is assisting Sam Volkering with background research and insight for readers by dissecting the latest events affecting the world. Working closely with Sam, they explore the latest in small-cap and technology stocks as well as cryptocurrency opportunities. You can find Ryan’s contributing research, developments, and supporting information across several e-letters, including:


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