It finally rained here in Southern California.

It's a relief for us out here, but no one is delusional enough to think it's going to erase the effects of the severe drought and refill the half-empty reservoirs or spring to life fallow acres of farmland responsible for California's $45 billion agriculture industry.

This brief blessing from Mother Nature, the conservation measures, and the recycling efforts are all temporary fixes to what could be a very long-term problem. Climatologists now believe this could be the beginning of a mega-drought lasting years or even decades.

Bottom line: California needs more water. Blame it on increased demand, lack of rainfall, whatever you want.

Thankfully, the long-lasting and permanent fix is right under our noses -- the Pacific Ocean. 187 quintillion gallons of glorious water… salt water. We should just build a bunch of desalination plants up and down the coast and stick a giant straw in the great Pacific.

20 years ago -- when costs of building these plants were unfathomable due to inefficiencies and immature technology -- you might label me delusional.

Today, that has changed.

In fact, one small-cap innovator has almost single-handedly driven costs down for the process known as seawater reverse-osmosis (SWRO).

The company designs, manufactures and sells patent-protected energy recovery devices (ERDs) that save 60% of otherwise wasted energy, making plants far more cost-effective.

At the same time, some 15,000 desalination plants have recently popped up across the globe, and this innovator has already captured an almost unbelievable 90% of market share for these devices.

Each of the ERD units sells for $25,000 and the company has sold more than 14,000 across every continent and every ocean with a 60% gross profit margin.

Customers get a return on investment in just three months, the product lasts 25 years, and no maintenance is required. That certainly explains its remarkable market penetration in a market expected to achieve 20% compounded annual growth per year.

Israel, which until the winter of 2011-2012 had experienced seven straight years of drought, is building its sixth desalination plant expected to deliver 7 million gallons of potable water every minute. There's even talk of too much water there today. Every one of its plants is equipped with this Energy Recovery's PX line of ERDs.

And it's likely that many if not all of the 17 desalinization plants in blueprint stage or being built along the coast of California will as well, starting with a $1 billion plant currently under construction in Carlsbad, just north of San Diego.

The company I'm talking about Energy Recovery Inc. (Nasdaq: ERII) was awarded a huge contract for the project last September. The $308 million company will provide 144 of its PX Pressure Exchanger Q300 units to this the largest desalination plant in the western hemisphere. The plant is expected to come online in 2016 and produce upwards of 50 million gallons of water per day.

And in its third-quarter 2013 report, Energy Recovery alluded to a large number of projects lining up for this year that are expected to shift its desalination business into growth mode again.

I say 'again' because revenue growth of 34% in the first quarter of 2013 was followed up by two not-so-good quarters with second- and third-quarter declines of 30% and 54%, respectively. After reaching a 52-week high of $7.67 on Sept. 20, concerned investors sent the stock down 50% through Feb. 11.

I first recommended this stock just a few days ago on February 27, because my analysis told me it could have 50% upside in the short term. Sure enough, the stock went on to jump 31% on March 6 when the company released 2013 earnings. The energy pump developer recorded net income of $0.13 a share, $0.05 more than analysts estimated. Revenue also rose 54.1% year-over-year and beat consensus by $1.87 million.

The stock price came back down to earth a bit the following day, Friday, selling off 7.8% as a result of a healthy pocketing of profits. It traded very heavily, some 3.2 million versus its average 668,000.

Looking beyond this year, Energy Recovery is equipped to handle the orders created by 17 more desalination plants in California as well as other projects likely to crop up in water-challenged states like Texas and Florida… and around the world.

In addition, while ERDs for desalination plants are the company's bread-and-butter, it is conducting field tests for applying the same technology in gas processing. This $1 billion market could provide even meatier profits for Energy Recovery.

Risks to consider: One aspect of the earnings report that didn’t sit well with analysts or investors was a lack of concrete guidance for 2014. That means the stock could have more room to fall in the short-term.

Action to take --> This is a small company with huge growth potential. Stock prices will ebb and flow, however, I think the current price of $6.00 is still a grood entry point. It's certainly not out of the question that ERII could hit a new 52-week-high over the short-term, which could equate to another 20% for investors.