I recommended buying Ceco Environmental a couple of months ago for a 31% gain in a little over two weeks. I gave my sell recommendation a little too soon but I have still been following the stock and I would recommend staying away from the company until they show an increase in earnings.

Ceco Environmental recently reported Q4 06 results on March 22. They posted earnings of 0.09 per diluted share on revenue of 41.5 million. Revenue improved but the lack of earnings growth was a huge problem. In Q2 06 Ceco Environmental had earnings of 0.12 per diluted share on revenues of 31.7 million. This quarter they had almost ten million more in revenue but had three cents less in earnings. The lack of earnings growth and the huge run-up in the share price was a bad combination and the stock price has taken quite a beating in the last week.

Another problem with Ceco Environmental is dilution. In Q1 06 they had 10.91 million diluted shares. This quarter they have 13.17 diluted shares. Since earnings are not increasing the value of existing investor’s holdings are declining.

I think Ceco Environmental is going to continue to decline and I would recommend watching the stock from the sidelines. If they can increase earnings in the future and stop diluting so much Ceco may be worth another look.

Disclosure: I don’t own shares of CECE and I am not shorting CECE.