Aris Water (ARIS)

Water handling and recycling company Aris Water (NYSE:ARIS) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 22.7% year on year to $124.1 million. Its non-GAAP profit of $0.33 per share was in line with analysts’ consensus estimates.

Company Overview

Primarily serving the oil and gas industry, Aris Water (NYSE:ARIS) is a provider of water handling and recycling solutions.

Many air and water services are statutorily mandated or non-discretionary. This means recurring revenues are often earned through contracts, making for more predictable top-line trends. Additionally, there has been an increasing focus on emissions and water conservation over the last decade, driving innovation in the sector and demand for new services. On the other hand, air and water services companies are at the whim of economic cycles. Interest rates, for example, can greatly impact manufacturing or industrial processes that drive incremental demand for these companies’ offerings.

Competitor of Aris Water include Evoqua Water Technologies (NYSE:AQUA), Pentair (NYSE:PNR), and Veralto (NYSE:VLTO).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Aris Water’s 23.8% annualized revenue growth over the last five years was incredible. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Aris Water’s annualized revenue growth of 14.6% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

We can better understand the company’s revenue dynamics by analyzing its number of units sold. Over the last two years, Aris Water’s units sold averaged 5.9% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Aris Water reported robust year-on-year revenue growth of 22.7%, and its $124.1 million of revenue topped Wall Street estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to grow 2.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Aris Water has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 55.7% gross margin over the last five years. Said differently, roughly $55.71 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Aris Water produced a 36.9% gross profit margin in Q2, down 23.7 percentage points year on year. Aris Water’s full-year margin has also been trending down over the past 12 months, decreasing by 6.4 percentage points. If this move continues, it could suggest a more competitive environment with pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Aris Water has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Aris Water’s operating margin rose by 10.6 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Aris Water generated an operating margin profit margin of 21.2%, down 2.4 percentage points year on year. Since Aris Water’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Aris Water’s EPS grew at an astounding 108% compounded annual growth rate over the last five years, higher than its 23.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Aris Water’s earnings can give us a better understanding of its performance. As we mentioned earlier, Aris Water’s operating margin declined this quarter but expanded by 10.6 percentage points over the last five years. Its share count also shrank by 127%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Aris Water, its two-year annual EPS growth of 53.7% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, Aris Water reported EPS of $0.19, up from $0.18 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Aris Water broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders. The divergence from its good operating margin stems from its capital-intensive business model, which requires Aris Water to make large cash investments in working capital and capital expenditures.

Taking a step back, an encouraging sign is that Aris Water’s margin expanded by 38.4 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Aris Water’s free cash flow clocked in at $52.57 million in Q2, equivalent to a 42.4% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Aris Water has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.8%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Aris Water’s ROIC averaged 4.9 percentage point increases over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

Aris Water reported $57.36 million of cash and $490.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $219.9 million of EBITDA over the last 12 months, we view Aris Water’s 2.0× net-debt-to-EBITDA ratio as safe. We also see its $19.99 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Aris Water beat analysts’ revenue expectations this quarter. We were also happy its EBITDA narrowly outperformed Wall Street’s estimates. On the other hand, its EPS slightly missed. Overall, this print had some key positives. The stock remained flat at $23.50 immediately after reporting.

Updated: November 12, 2025 at 10:07 PM EST

Before making an investment decision, investors should account for Aris Water’s business fundamentals and valuation in addition to what happened in the latest quarter.

There are numerous reasons why we think Aris Water is one of the best industrials companies out there. For starters, its revenue growth was exceptional over the last five years. And while its low free cash flow margins give it little breathing room, its admirable gross margins indicate the mission-critical nature of its offerings. On top of that, Aris Water’s impressive operating margins show it has a highly efficient business model.

Aris Water’s price-to-sales ratio based on the trailing 12 months is 1.7x. Looking at the industrials landscape today, Aris Water’s qualities really stand out, and we like it at this price.