Waste and recycling services provider Quest Resource (NASDAQ: QRHC) reported revenue ahead of Wall Streets expectations in Q3 CY2025, but sales fell by 13% year on year to $63.34 million. Its non-GAAP loss of $0.02 per share was $0.01 below analysts’ consensus estimates.

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Company Overview

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

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Quest Resource’s sales grew at an incredible 22.7% compounded annual growth rate over the last five years. 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 marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.6% over the last two years.

This quarter, Quest Resource’s revenue fell by 13% year on year to $63.34 million but beat Wall Street’s estimates by 5.9%.

Looking ahead, sell-side analysts expect revenue to decline by 3.4% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its newer products and services will not catalyze better top-line performance yet.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Quest Resource was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.3% was weak 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 5.5 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.

In Q3, Quest Resource generated an operating margin profit margin of 1.7%, up 3 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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.

Sadly for Quest Resource, its EPS declined by 49.1% annually over the last five years while its revenue grew by 22.7%. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of Quest Resource’s earnings can give us a better understanding of its performance. As we mentioned earlier, Quest Resource’s operating margin expanded this quarter but declined by 5.5 percentage points over the last five years. Its share count also grew by 21.6%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Quest Resource, its two-year annual EPS declines of 121% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Quest Resource reported adjusted EPS of negative $0.02, up from negative $0.06 in the same quarter last year. Despite growing year on 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 $0.29 will flip to positive $0.04.

Key Takeaways from Quest Resource’s Q3 Results

We were impressed by how significantly Quest Resource blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its EPS was in line. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $1.41 immediately after reporting.

So should you invest in Quest Resource right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.