Gevo Inc.’s (GEVO) stock skyrocketed over the past four months primarily because of Biden’s Green Energy plan, which stimulated its growth. Gevo also announced a series of plans it is going to be undertaking to make the company attractive in the headlines. The most common concern investors have is whether there’s enough demand for biofuel for the company to succeed long-term. According to research staff at InvestorPlace, the $141 billion biofuel market of 2020 is expected to more than twofold to $307.01 billion by 2030, showing potential for Gevo’s stock to grow.
The Energy Stock Could Catch A Tailwind but Uncertainty Prevails
Gevo is a renewable chemicals and biofuels company centered on the improvement and commercialization of gasoline, aviation fuel, and diesel to attain zero-carbon outflows and diminish gas emanations with prudent alternatives. With a market capitalization of over $2 billion, the company has an advantage during the Biden administration because of the favorable regulations Biden hopes to reinstate in his tenure and his stance on achieving a clean energy economy.
What is harming the company is that it hasn’t made any income in any recent years or has shown any positive growth toward becoming profitable. The losses the company is making have been expanding. Even though the final year’s report isn’t accessible yet, the company’s net income over the past few years was $-24.63 million, $-27.97 million, and $-28.66 million in 2017, 2018, and 2019, respectively. This makes the company looks like a risky bet for speculators. What is encouraging to see is that Gevo carries no debt on its balance sheet and had a cash balance of $535 million as of January.
Gevo’s Share Price Movement
Gevo had a deceleration in its stock price since June 2018, going down to $0.55. Last year on November 20, when Biden’s victory was announced, Gevo stock entered a bull run that saw the share price appreciate substantially through mid-February. Analysts at CNN forecast a median target price of $17, and a high target price of $18, and a low target price of $16. The median price represents a 96% upside from the current price of around $8.63.
Gevo Announces A Promising Series of Projects
The company is effectively undertaking ventures which may be a great sign that it is attempting to secure its future. In January, Gevo announced its Net-Zero 1 project which is a new biofuel expansion plan the company is pursuing that is expected to produce energy-dense liquid hydrocarbons that result in a net-zero greenhouse gas footprint when burned as a transportation fuel.
Within the same month, the company reported that it partnered with Koch Process Solutions to supply the Front-End Engineering and Design Services for the project, which is anticipated to be completed in December, whereas the financing of the venture will be completed a short time later with Citigroup Global Markets. The project is to be constructed in Lake Preston, South Dakota and is expected to cost $800 million in capital expenditures.
Last month, Gevo signed an agreement with the Scandinavian Airlines System to increase the purchase of sustainable aviation fuel from Gevo to a minimum purchase obligation of 5 million gallons per year. The contract is expected to go into effect by Gevo’s second Net-Zero project beginning in 2024.
Takeaway
Investors ought to be careful that the outlook for an industry can have a significant impact on the performance of a company and its stock in that industry. Also, it’s fundamental to pay consideration to the company’s operations to make an informed investment decision concerning its value. Gevo seems to be on the correct track, but then again, there are many uncertainties regarding the future of the company, which calls for thorough due diligence on the part of investors before jumping on board.
Disclosure: The author does not own any shares mentioned in this article.
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