Here’s Why Energy Recovery (ERII) Fell in Q2

Conestoga Capital Advisors, an asset management company, released its second-quarter 2025 investor letter. A copy of the letter can be downloaded here. The second quarter began with a historically poor start but gained momentum later as tariff fears subsided and market volatility dropped precipitously. Conestoga Micro Cap Composite appreciated 15.65% net-of-fees in the second quarter but underperformed the Russell Microcap Growth Index’s 20.92% return. In a highly volatile market led by high-beta and lower-quality stocks, the firm does not expect the fund to align with index performance. Please review the fund’s top 5 holdings to gain insight into their key selections for 2025.

In its second quarter 2025 investor letter, Conestoga Capital Advisors highlighted stocks such as Energy Recovery, Inc. (NASDAQ:ERII). Energy Recovery, Inc. (NASDAQ:ERII) develops, manufactures, and distributes energy efficiency technology solutions. The one-month return of Energy Recovery, Inc. (NASDAQ:ERII) was 8.61%, and its shares lost 3.81% of their value over the last 52 weeks. On July 25, 2025, Energy Recovery, Inc. (NASDAQ:ERII) stock closed at $13.88 per share, with a market capitalization of $756.449 million.

Conestoga Capital Advisors stated the following regarding Energy Recovery, Inc. (NASDAQ:ERII) in its second quarter 2025 investor letter:

“Energy Recovery, Inc. (NASDAQ:ERII) is a global leader in energy efficiency technology through its proprietary pressure exchanger technology. After being a 1Q leader, ERII gave back its gains on a weak first quarter report. ERII’s results are always hard to predict on a quarterly basis and the first quarter is historically the lightest, but the street was caught off guard by revenue at half the expected level. Management also paused its Wastewater segment guidance due to its Chinese exposure. Liberation Day level tariffs made their products uncompetitive. The company’s largest segment, desalination, continues to see robust demand.”

A treatment plant with a large industrial wastewater treatment pipe in the foreground.

Energy Recovery, Inc. (NASDAQ:ERII) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 19 hedge fund portfolios held Energy Recovery, Inc. (NASDAQ:ERII) at the end of the first quarter compared to 15 in the previous quarter. While we acknowledge the risk and potential of Energy Recovery, Inc. (NASDAQ:ERII) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Energy Recovery, Inc. (NASDAQ:ERII) and that has 10,000% upside potential, check out our report about this cheapest AI stock.

In another article, we covered Energy Recovery, Inc. (NASDAQ:ERII) and shared Conestoga Capital Advisors’ views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.