Formaldehyde is a colorless, flammable, strong-smelling chemical used in building materials and to produce many household products.  Examples include pressed-wood products, like particleboard, plywood, and fiberboard; glues and adhesives; plus many more.

Pressed-wood products containing formaldehyde resins are often a significant source of formaldehyde in homes and offices.

In short, formaldehyde is all around us nearly all the time.

Formaldehyde is hazardous to your health!

When formaldehyde is present in the air at levels exceeding 0.1 ppm, some individuals may experience adverse effects such as watery eyes; burning sensations in the eyes, nose, and throat.  Coughing, nausea, and skin irritation are also common short-term health effects caused by formaldehyde exposure.

While short-term effects from formaldehyde are well known, less is known about the potential long-term health effects.  According to Cancer.gov, laboratory studies in 1980 showed that exposure could cause nasal cancer in rats.  This finding raised the question of whether formaldehyde exposure could also cause cancer in humans.  In 1987, the U.S. Environmental Protection Agency (EPA) classified formaldehyde as a probable human carcinogen under conditions of unusually high or prolonged exposure.  Since that time, some studies of humans have suggested that formaldehyde exposure is associated with certain types of cancer.  The International Agency for Research on Cancer (IARC) classifies formaldehyde as a human carcinogen.

In 2011, the National Toxicology Program, an interagency program of the Department of Health and Human Services, named formaldehyde as a known human carcinogen.

So we’ve established that formaldehyde has been a carcinogenic product for 3 decades.  Yet, it’s only more recently that consumers and regulators are beginning to demand an alternative (partly thanks to educational and marketing campaigns highlighting the health risks).

Being that formaldehyde is a known human carcinogen smart shoppers are beginning to demand “formaldehyde free” furniture products for their homes and offices.  Over and above the shift in consumer preference toward sustainability and eco-friendliness, new regulations are forcing retailers, builders, and manufacturers to replace formaldehyde (the traditional binder for wood composites) with a bio-based alternative.

EcoSynthetix (ECO, TSX), a bustling little business based in Burlington, Ontario, produces just such an alternative solution.

It’s a “green glue” called DuraBind!

My prediction is that DuraBind is going to steal a healthy percentage of the $15 billion global wood binder market away from formaldehyde.

EcoSynthetix’s DuraBind technology is special because it enables wood composite manufacturers to eliminate the use of harmful chemicals and maximize the amount of renewable content in their products.  Particle board (PB), medium density fiber board (MDF), oriental strand board (OSB), veneers and laminates, can all be manufactured today using DuraBind.

Change is coming.  Consumers are asking for it!  Regulatory agencies are taking action against it!  And many of the world’s largest retailers have pledged to eliminate it!

As EcoSynthetix says:  “A day without formaldehyde in the building products industry is coming. Will you be ready?”

That’s their call to action and DuraBind is the solution!

It’s available today at a competitive price, comparable to or less than formaldehyde (the incumbent).

EcoSynthetix‘ vision is to be one of the world’s leading developers of bio-based materials.  ECO is the way to ride the wave of success they’re beginning to have.  ECO is a stock capable of making investors a lot of money in the months and years to come.  Plus, I believe there’s a bull market in plant-based alternative proteins and chemicals as we referenced last week – look at Beyond Meats (BYND, NASDAQ), now above $100 per share!   Keep an eye on Burcon NutraScience (BU, TSX), too, which has been consolidating after a 10 x run in May!

A ground swell for bio based, “eco friendly”, sustainable chemicals is forming.

ECO is one way to play!  Ride the wave!

I’ll have you know, IKEA – the wood composite furniture giant – has been working very closely with EcoSynthetix for several years now.  Introducing new chemistries into established manufacturing processes is complicated, but EcoSynthetix has proven itself capable of advancing from trial periods through commercial success.  IKEA is one of their largest customers right now.

EcoSynthetix is also in various stages of trial periods with +5 of the world’s largest wood composite manufacturers, using DuraBind.

We’re still very-very early, inning 1, in the adoption phase of DuraBind.

Essentially, 99% of EcoSynthetix‘ potential market (expressed as the number of wood composite lines) remains untapped.

In Summary:  There’s a bull market within a market!  Investors are hungry for companies that make eco-friendly (bio based) sustainable products, like EcoSynthetix.  Consumers and regulators are demanding retailers carry non-toxic formaldehyde free furniture, so manufacturers of those wood composites have no choice but to comply.  DuraBind, EcoSynthetix‘s proprietary “green glue”, is a viable solution today.  I expect they’ll continue to gain market share and win new customers, perhaps even achieve breakeven/profitability this year (insiders have guesstimated EcoSynthetix will break even when sales hit $24 million).

Trading near $2.50 per share, a 52-week high, ECO has a market cap of $145 million.  The company’s balance sheet is strong with approximately $44 million cash and no debt.

From my perspective, a pullback toward $2 would be greatly appreciated.  I’d embrace such a pullback as an entry point and opportunity to buy ECO (possibly even elevating it to what I’d consider a core holding within my portfolio).  EcoSynthetix has a HUGE chance at breaking into this $15 billion wood binder industry in a big way.

Heck, they’re already in with IKEA…who’s next?

daniel
(561) 596-5067

Asset Management & Equity Research