CECO Environmental Corp (CECE) bills itself as North America’s largest independent air pollution control company. I’ve found it nearly impossible (and way too boring) to sort thru all the myriad of subsidiaries this company acquired over the years to actually get a qualitative clear picture of the business. Nevertheless, from a simple quantitative perspective, the stock looks interesting at current prices ($3.50).

What attracts me, as always, is an “appearance” of massive losses, a stock price that’s near a five year low, an attractive industry, and a low EV/Sales valuation ratio.

As for the losses, while CECE reported a seemingly large loss of $14 million in the last quarter, the truth is that the loss is mainly attributable to a Goodwill impairment charge. Without the non-cash charge the company was profitable. In addition, despite massive accounting losses in the past year, the company was still able to cut debt in half over the last year from to $13.5 million from $26.7 million. This provides strong evidence of the company’s strong internal cash-flow.

Overall, in looking at the numbers, it seems clear to me that over the coming year, the financial comparisons will greatly improve, which should help the stock price recover somewhat. I also believe that the business has stabilized from a massive downturn, as indicated by the backlog which as of December 31, 2009 was $66 million compared to $68 million as of December 31, 2008. The “it’s not getting any worse” investment theme has strong appeal for investors, as evidenced by the incredible financial paper recovery over the last year.

Furthermore, over the longer-term, I believe there is incredible potential in the air pollution business, given the favorable regulatory backdrop and the increasing attention given by businesses to environmental concerns. So if the company’s claims are accurate (i.e. “We believe we are the leading provider of complete turnkey solutions to the air pollution control and industrial ventilation industry and one of the largest and most diversified turnkey solutions providers in North America. “), it seems inevitable that CECE will see strong growth over the coming 3 to 5 years.

The improving near-term financial results, coupled with the high future growth prospects in an industry with alot of “hype”, should attract investors into this beaten down stock.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in CECE. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise