In the stock market, as in nature, it takes time to recover from a fire. This year, Met-Pro Corporation (NYSE:MPR) has been recovering from a fire sale.

Harleysville, Penn.-based Met-Pro is a pollution control firm that helps corporations and organizations clean up their own messes. It won't solve global warming, but governments around the world are increasingly pressuring industries to make their processes more environmentally friendly, and that has been good for business, even in a lousy economy.

But the fan hit the spark in January of this year, when the company announced the discovery that in 2006, one of its sales people had been booking revenues early. The sales person was fired, and Met-Pro had to restate earnings for several quarters of fiscal 2007 (ended Jan. 31, 2007), shifting some earnings from one quarter to the next, although total earnings for the year remained the same.

The market burned the stock. It lost over 16% of its value in little more than a month — closing at $9.83 on Feb. 6, down from a close of $12.02 the previous Dec. 31. "The reaction was extreme," says Ryan Connors at Boenning & Scattergood Inc. in a phone interview.
 
The stock has since made an equally strong recovery, shooting back up to $13.44 at Tuesday’s closing. Its 52-week low was $9.30 and its high was $15.25. Its market cap is $202 million.

Connors thinks it has further to go. He maintains a "market outperform" rating and a $14 price target. Richard A Verdi of Sturdivant & Co. is even more optimistic. On May 23, he reiterated his "market outperform" rating and raised his target price to $16 from $14.

Met-Pro is divided into three segments that help keep the world clean. Its pollution control products include air scrubbers, exhaust systems, dust and particulate matter collectors, and water treatment chemicals to help reduce air pollution, avoid contaminating water and reduce odors. The fluid-handling segment makes specialized pumps and filters to move and treat corrosive fluids, including acids, solvents, caustics, bleaches and seawater, as well as extremely hot oil and water. The filtration and purification technologies segment produces water treatment chemicals and filters that help reduce chemicals and metals such as iron, lead and copper from municipal water systems.

These products are sold to everything from academic laboratories and public aquariums to petrochemical processing plants and wastewater plants. It has business units in the United States, Canada, Europe and The People's Republic of China (where its products help control byproducts from metalworking factories) and sells to growing regions including the Middle East, Southeast Asia and Eastern Europe. "Met-Pro is in so many industries that the general push toward reducing emissions has kept it relatively insulated from the macro economic environment," Connors says.

It's not entirely insulated. For the first fiscal quarter of 2009 ended April 30, 2008, revenues were up just 3.4% from a year ago, to $22.7 million, which Connors considers "respectable in the current environment." But Met-Pro is also a story of increasing margins. First-quarter net income of $1.9 million ($0.13 million) was in line with consensus estimates and represented 28% growth (or 30% growth in EPS) from a year ago (excluding a gain from the sale of property from the previous year). It has $25.1 million in cash and just $4.8 million in long-term debt.

That's the result of hard work in response to the other, more slow-burning fire the company had to douse. A few years ago the cost of raw materials it uses, particularly steel, began to rise, cutting its gross margins. By mid-2006, gross margins had bottomed out at just over 28%, from a high of over 36% in early 2003. So it became more diligent about finding sources of raw materials, reorganized its sales force, and improved efficiencies in its organization. In the most recent quarter, its gross margins were back up to 33.5%, approaching the company's historical range of 34% to 35%.

The caveats of this company are largely based on whether those improvements can continue in the current economic climate. Steel prices, for example, are beginning to rise again. Despite strong praise for the company's performance in a May 12 report, Brean Murray Carret & Co. analyst Michael Gaugler reluctantly maintained his "hold" rating. In the report he wrote: "It is somewhat disappointing to us to not be more positive with our rating given all the operational improvements that have materialized at Met-Pro Corp." But he believes it is already fairly priced. His analysis places fair value between $12 and $13.

Still, he's the only one of the three analysts covering the company who holds that opinion. Connors notes that Met-Pro trades at a discount to several of its peers. CECE Environmental Corp.'s (Nasdaq:CECE) stock, for example, has dropped 42% since the beginning of the year, but its P/E of 21 still beats Met-Pro's multiple of 17. That's partly because Met-Pro is not highly liquid. But, says Connors: "For an individual investor, Met-Pro's stock is a good opportunity."