Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Nuverra Environmental Solutions, Inc. (NYSE:NES) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Nuverra's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Nuverra's key statistics:

NES Total Return Price Chart

NES Total Return Price data. Source: YCharts.

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

757%

Pass

Improving profit margin

(86.5%)

Fail

Free cash flow growth > Net income growth

203.8% vs. (1,499.8%)

Pass

Improving EPS

(565.7%)

Fail

Stock growth (+ 15%) < EPS growth

(64.5%) vs. (565.7%)

Fail

Source: YCharts. * Period begins at end of Q4 2010.

NES Return on Equity (TTM) Chart

NES Return on Equity (TTM) data. Source: YCharts.

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(541.9%)

Fail

Declining debt to equity

719.8%

Fail

Source: YCharts. * Period begins at end of Q4 2010.

How we got here and where we're going
Things don't look good at all for Nuverra in its second assessment, as it earned only two out of seven possible passing grades compared to the four passes it picked up previously, when it was still known as Heckmann Corporation. Nuverra's biggest weakness is its sinking net income, which has not only remained in negative territory for quite some time but also taken a much steeper drop lately as the company tries a more aggressive expansion strategy. This has resulted in declining profit margins, weaker equity metrics, and increasing debt burdens. This is somewhat offset by the fact that Nuverra's free cash flow is finally in positive territory, but will it be enough for this oil and gas services specialist to turn around its sagging fortunes and falling share price? Let's dig a little deeper to find out.

Last month, Nuverra reported lackluster fourth-quarter earnings, as competitive pressures and inclement weather tag-teamed its top and bottom lines. It also announced the sale of its Thermo Fluids division -- which brought in revenues of $26 million in the fourth quarter -- to VeroLube for $175 million in cash and stock. My fellow writer Dan Caplinger notes that the sale of Thermo Fluids should allow Nuverra to tighten its focus on shale-drilling environmental solutions, which should ultimately drive better long-term results. However, investors are a bit disappointed with Nuverra's decision, as the sale produced a hefty $70 million loss against what it originally paid to acquire Thermo Fluids in 2012.

The sale of Thermo Fluids business will also help Nuverra trim its high debt load of over $550 million, but the company is already facing some short-term liquidity problems. To counteract this issue, it plans to increase its existing credit facility from $200 million to $245 million, which is also likely to create increased interest expenses. The company's brisk expansion seems to demand this financing boost, as it plans to build a $30 million thermal desorption facility to treat and recycle oil well cuttings or solid waste and between $20 million and $30 million worth of water pipelines in the Bakken region. Nuverra could also benefit from its water recycling program -- H2O Forward -- which will leverage a partnership with Halliburton to obtain future contracts in other shale areas.

Recovering natural gas prices and increased energy exploration activities in the United States should put Nuverra in a good position for sustainable revenue growth over the next few quarters. Fellow writer Mark Holder notes that Nuverra ought to benefit from ongoing shale gas exploration activities in the Gulf Coast, coupled with thus-far underutilized pipeline assets in the Haynesville and Marcellus Shale regions. However, Nuverra's underperforming Texas and Louisiana assets, as well as recent "weather-related" weakness, have left investors skeptical about its future potential.

Putting the pieces together
Today, Nuverra has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

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Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Halliburton and owns shares of Nuverra Environmental Solutions. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.