In a time when ESG (environmental, social and governance) investing is fashionable, Colorado-based Gevo GEVO> has captured the market’s attention. And, when GEVO stock was in favor earlier this year, the share price shot up like a rocket.
However, starting in mid-February, that rocket ship came back down to Earth. It’s a harsh lesson for folks who latch on to market trends at the wrong time.
On the other hand, value-focused investors might see a huge opportunity in GEVO stock at the current price. After all, surely there’s still a chance to capitalize on the clean-energy market in 2021.
There’s no denying that sustainability will remain an important theme throughout the year. Still, you’ve got to pick and choose your investments carefully – and Gevo might not be the right company, right now.
A Closer Look at GEVO Stock
As recently, as late October of 2020, GEVO stock shares cost less than $1 apiece. That turned out to be a terrific bargain, given the sharp rally that followed.
Believe it or not, the stock ran up to a 52-week high of $15.57 on Feb. 12, 2021. Unfortunately, folks who chased the stock near that level and held on were severely punished.
Over the next three months, the GEVO stock was literally cut in half. By May 21, the stock was trading at $6.87.
From a technical standpoint, it’s difficult to know where the stock price will go next. It’s been much higher, and it’s been much lower than the current price.
One way to get a more favorable risk-to-reward profile would be to simply wait for lower prices before taking a long position in GEVO stock.
This cautious strategy could be the most sensible one as the trading community might not be ready to bid up the share price just yet.
A “Drop-In” Fuel Source
To put it simply (maybe), Gevo is a renewables-sector company with a focus on drop-in gasoline and other hydrocarbons with net-zero greenhouse gas emissions.
In other words, the company specializes in capturing renewable energy and transforming it into energy-dense liquid hydrocarbons.
The idea is to create (or at least modify) a fuel source that can be used as a “drop-in” to existing infrastructure and fleets, and which can be easily stored and transported globally.
To achieve this, Gevo uses “synthetic biology and engineering to implement 260+ changes to yeast.” Through fermentation technology, the company is pioneering a highly promising fossil-fuels alternative.
And importantly, Gevo has an extensive intellectual property portfolio of 595 patents and applications (inclusive of Gevo and cross-licensed Butamax patents and applications).
With that, Gevo can produce and sell the company’s patented yeast and provide other technologies to licensees – a lucrative proposition, no doubt.
A Mixed Fiscal Picture
So far, it probably sounds like I’m long-term bullish on Gevo, the company.
That’s true, but it doesn’t mean that I’m short-term bullish on the stock right now.
The problem is, Gevo’s first-quarter 2021 financial results weren’t all that great.
I’ll start with the positive part of it. At the end of the first quarter, Gevo had cash and cash equivalents of $525.3 million. That’s a vast improvement over the $78.3 million the company had at the end of 2020’s first quarter.
However, other data points were less encouraging:
- $0.1 million in revenues, versus $3.8 million in 2020’s first quarter
- Loss from operations of $9.9 million, versus a loss of $8 million in the year-ago quarter
- Non-GAAP cash EBITDA loss of $7.8 million, versus a loss of $6.2 million in the first quarter of 2020
- “[H]ydrocarbon revenue was nil compared with $0.1 million in the same period in 2020”
The Bottom Line
I actually like Gevo, the company. On a long-term basis, an investment in this company could provide excellent returns.
Yet, investors should time their entries carefully. Waiting for the GEVO stock price to go down is a cautious approach which could offer a better risk-to-reward scenario.
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On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
GEVO shares were unchanged in after-hours trading Monday. Year-to-date, GEVO has gained 62.35%, versus a 12.48% rise in the benchmark S&P 500 index during the same period.
About the Author: David Moadel
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. More…
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