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Introduction

Aris Water Solutions, Inc. (NYSE:ARIS) appears richly valued at current prices, trading at 18X earnings. The stock has been a “darling” of Wall Street for some strange reason since its IPO, trading at substantially higher multiples than its competitors, Select Energy Services, Inc. (WTTR), for example.

I wrote them up in the middle of last year with a favorable rating, but the company is now 20% lower than it was then. A fact attributable more to the oil price sag, malaise that’s kept the microcaps like ARIS and WTTR from realizing the gains seen by the big colors, than a problem with their business model per se.

ARIS price chart (Seeking Alpha)

It’s time to face facts. ARIS has been a dog, going essentially nowhere in 2022, and not giving much sign of moving higher so far in 2023. Will it remain a dog? That is the question we will address in this article. The stock still has the backing of Wall Street, which is willing to assign them an overweight rating at 18X earnings and 9.5X EV/EBITDA, with a price target as high as $24 per share.

What are the analysts seeing that has them allocating higher multiples to ARIS than Halliburton (HAL) – now trading at 13X earnings, and 8X EV/EBITDA? Let’s have a look to see if we can find a reason for this bullishness.

The thesis for ARIS

ARIS is exclusively focused on the Permian basin, as shown in the map below. Specifically, the best part of it in terms of activity in Lea and Eddy counties in New Mexico, and the Northern section of Loving county in the Delaware basin, and Martin, Howard, and Midland counties of Texas in the Midland basin. Those counties account for over 230 of the 350 or so rigs operating in the Permian.

ARIS footprint (ARIS)

Unlike competitors WTTR and TETRA Technologies (TTI), ARIS is a water management pure play. Their business is spread equally over the frack water flowback and cleanup, and …