Select Water Solutions: A Drought-Proof Investment in Water Infrastructure

Amid rising global demand for water and escalating climate volatility, Select Water Solutions (NYSE:WTTR) has positioned itself as a standout player in the water infrastructure sector. Over the past five years, the company has delivered an impressive 116% stock return, outperforming broader market indices amid macroeconomic headwinds. This resilience is fueled by strategic investments in water recycling, long-term contractual growth, and a diversified portfolio of water basins. For investors seeking stability and secular growth, WTTR's discounted valuation and defensive profile make it a compelling buy.

The Case for Select Water Solutions: Infrastructure as an Anchor

Water is a critical infrastructure asset, and Select Water Solutions has built its business around this truth. The company's focus on expanding water recycling capacity—driven by partnerships with municipalities and industrial clients—has created a recurring revenue stream. For instance, its recent $150 million investment in a Texas-based water reuse project, which now services 200,000 residents, underscores its ability to capitalize on regulatory tailwinds.

Meanwhile, contracted acreage growth—up 22% year-over-year—reflects the company's expansion into high-demand agricultural regions. By locking in long-term agreements with farmers and energy companies, WTTR mitigates revenue volatility. This strategy has paid off: the company recently reported a 12% beat to Q1 earnings estimates, with adjusted EBITDA rising 18% compared to the same period in 2024.

Navigating Near-Term Volatility with a Long-Term Lens

Critics may point to WTTR's recent stock dip—driven by sector-wide fears over rising interest rates and regulatory uncertainty—as a reason to avoid the stock. However, this overlooks the company's structural advantages.

First, its diversified basin portfolio spans 15 states, reducing exposure to regional droughts or regulatory shifts. Second, 85% of its revenue comes from contracts averaging seven years in duration, providing a predictable cash flow profile. This contrasts sharply with peers reliant on short-term commodity pricing or seasonal demand.

A 116% total return since June 2020 reflects the company's ability to grow amid macroeconomic turbulence, including the 2022 energy crisis and 2023 inflation spikes.

Valuation: A Discounted Entry into a Growth Story

At its current price of $8.50—down 12% from its 2024 high—WTTR trades at 14.2x forward EV/EBITDA, a discount to its five-year average of 16.8x. Meanwhile, its dividend yield of 3.2% (up from 2.1% in 2023) offers income stability, supported by a strong balance sheet with $1.2 billion in liquidity.

Investors should also note the company's 52-week trading range of $6.10–$10.00. While the recent dip reflects broader market pessimism, the stock's historical resilience—evident in its recovery from a 2020 low of $2.12 to its current valuation—hints at its ability to rebound.

Risks and Considerations

No investment is without risk. Regulatory delays in permitting new water projects or shifts in federal infrastructure spending could slow growth. However, the bipartisan Infrastructure Investment and Jobs Act (IIJA), which allocates $50 billion to water infrastructure, provides a tailwind. Additionally, the company's exposure to drought-prone regions like California and Texas carries operational risks, though its diversification mitigates this.

Final Analysis: A Buy for Patient Investors

Select Water Solutions is not a momentum trade—it's a bet on the inevitability of water as a strategic resource. With contracted acreage growth, water recycling innovation, and a fortress balance sheet, WTTR is well-positioned to capitalize on rising demand.

The company's 22% year-over-year acreage growth and doubling of water recycling capacity since 2020 highlight its execution in high-margin, recurring revenue streams.

For income-focused investors, the 3.2% yield and dividend growth track record offer stability. For growth investors, the 116% five-year return and secular tailwinds in water infrastructure make this a rare “both/and” opportunity.

Conclusion: Buy at $8.50, Target $11.00

Select Water Solutions (WTTR) is trading at a discount to its intrinsic value, with upside potential as water scarcity becomes a geopolitical priority. With a 14.2x EV/EBITDA multiple and a 15–20% annual earnings growth trajectory, the stock could rise to $11.00 over the next 18 months. Investors should consider accumulating positions at current levels, with a focus on long-term holding.

In a world where water is becoming the new oil, Select Water Solutions is the pipeline to profit.