Waste and recycling services provider Quest Resource (NASDAQ: QRHC) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 5.8% year on year to $68.43 million. Its non-GAAP loss of $0.14 per share was significantly below analysts’ consensus estimates.

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Perry Moss, Quest’s Chief Executive Officer, said, “I am proud of the team’s commitment to our ’performance culture‘, and we are working together to develop and implement short- and long-term initiatives. We are successfully adding and onboarding blue-chip clients, continuing to provide differentiated value-added service to clients, while at the same time taking significant actions to drive efficiencies and accountability across the organization. The actions now underway are beginning to normalize operations and will help position Quest to drive positive long-term results. Importantly, we have a robust pipeline and a strong value proposition, which we expect to translate into new customers and share of wallet growth with existing customers.”

Company Overview

Recycling corporate waste to help companies be more sustainable, Quest Resource (NASDAQ: QRHC) is a provider of waste and recycling services.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Quest Resource grew its sales at an incredible 23.8% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Quest Resource’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years.

This quarter, Quest Resource missed Wall Street’s estimates and reported a rather uninspiring 5.8% year-on-year revenue decline, generating $68.43 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 9% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and suggests its newer products and services will spur better top-line performance.

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Operating Margin

Quest Resource was roughly breakeven when averaging the last five years of quarterly operating profits, inadequate for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Quest Resource’s operating margin decreased by 6.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Quest Resource’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Quest Resource generated an operating profit margin of negative 11.9%, down 14.5 percentage points year on year. Since Quest Resource’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Quest Resource’s earnings losses deepened over the last five years as its EPS dropped 67% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Quest Resource’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Quest Resource, its EPS declined by 75.6% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.

Diving into the nuances of Quest Resource’s earnings can give us a better understanding of its performance. Quest Resource’s operating margin has declined by 13 percentage points over the last two yearswhile its share count has grown 4.7%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Quest Resource reported EPS at negative $0.14, down from $0.08 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Quest Resource’s full-year EPS of negative $0.26 will reach break even.

Key Takeaways from Quest Resource’s Q1 Results

We were impressed by how significantly Quest Resource blew past analysts’ EBITDA expectations this quarter. On the other hand, its revenue missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 9.4% to $2.29 immediately after reporting.

Quest Resource underperformed this quarter, but does that create an opportunity to invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.