Investors are closely watching the performance of Pure Technologies Ltd. to determine whether it's time to bail from the stock after its recent surge.
The Calgary-based company has been piling up contracts for its monitoring technology, which is sent into water pipes, buildings and bridges to find leaks and other structural problems.
The increase in business helped the stock hit an all-time high earlier this month. The shares are also up 66 per cent in the past 12 months, which includes a 16-per-cent jump so far in 2014, easily blowing past analyst targets.
That price appreciation led Canaccord Genuity analyst Sara Elford to downgrade the stock to a "hold" on Tuesday, breaking what was an unanimous "buy" rating among the six analysts who cover the company.
Still, Ms. Elford and other analysts see more growth ahead for Pure Technologies, especially in North America, where the need to fix aging infrastructure amid budgetary constraints are helping to fuel the company's business.
"The company's value proposition remains very well placed," said Ms. Elford in a note.
She maintained her $7.25 price target, which matches the analyst consensus for the next year, according to Thomson Reuters.
Other analysts say they're waiting for the company's fourth-quarter results next month before deciding whether to follow Ms. Elford's lead, or raise their price targets to reflect the recent share trajectory.
Many expect that investors won't be disappointed by the results, slated to be released March 13.
"We have a positive view on the stock and we expect the fourth quarter to be very strong," said Raveel Afzaal, an analyst at Mackie Research Capital, adding it should have a "positive impact" on his target price.
While the stock is "getting a little expensive right now," Jacob Securities analyst Khurram Malik also believes it's a good buy. "It's our best pick in term of North American water stocks, if you have a long-term perspective."
The stock closed down 34 cents or 4.2 per cent to $7.70 on the Toronto Stock Exchange on Tuesday. That's down 6 per cent from its record intraday high of $8.25 on Feb. 14.
The shares have come a long way since the fall of 2011, when they tumbled to around $2.50, their lowest point since the 2008 financial crisis, after a key project in Libya was disrupted by that country's revolution.
Pure Technologies has been replacing that lost revenue with growth in the Americas, particularly in the United States.
The stock started to really gain steam in the middle of last year, as the company began announcing new contracts and reported record revenues in both the second and third quarters.
Dev Bhangui of Byron Capital Markets sees Pure Technologies as a water infrastructure pure play with high margins and a 20-per-cent plus revenue growth for at least the next couple of years.
The analyst also see expansion into jurisdictions such as India, South Africa and China. "The company has now become a very dominant player, with an extremely effective business model," with a loyal customer base, Mr. Bhangui said.
Pure Technologies has also started to expand its business into the monitoring of oil pipelines.
While it represents only about 5 per cent of the company's current revenues, Pure Technologies founder and chairman James Paulson says it is part of the company's growth strategy.
"We have really unusual technologies and we have just begun to barely tap the surface on the market that is available to us," he said in an interview.
Pure Technologies also has high margins and is generating a lot of cash, which could be turned into a payout for investors. Mr. Paulson said the board is discussing initiating the company's first dividend as one option for its growing cash pile.
"It's something that would indicate a maturity to the company that I think is warranted," he said.