When shares in companies like those of Gevo (NASDAQ:GEVO) stock rocket upward, markets pay attention. Indeed, Gevo has risen meteorically. Shares were around $1 back in November. Now, GEVO stock is just under $10. To make a long story short, investors pay attention to stocks that rise more than 900% in the span of a few months.
Gevo is an alternative-fuel company that produces renewable gasoline and diesel, sustainable aviation fuel, chemical isolates, and animal feedstock.
The biofuel market is expected to roughly double in the next decade. One report predicts that the $141 billion 2020 market will more than double to $307.01 billion by 2030. U.S GDP is predicted to grow by 44.74% during that same period. The biofuel market is expected to outstrip U.S. growth. Thus, there is a compelling backdrop for Gevo’s opportunity. But is it worth your money?
Taking Off in Europe
On Feb. 22, Gevo announced an agreement with Scandinavian Airlines System (OTCMKTS:SASDF). The deal ups SAS’ previous 2019 deal with the company. SAS will now purchase an annual minimum of 5 million gallons of sustainable aviation fuel from Gevo starting in 2024.
Gevo plans to provide the fuel from its Net-Zero 2 Project with the estimated lifetime value of the SAS deal at more than $100 million.
Two days later, Gevo announced a memorandum of understanding to build a renewable hydrocarbon facility in Germany. The company will work with HCS Group GmbH to build the facility in Speyer, Germany. The site belongs to HCS Group GmbH. The facility will produce Gevo’s sustainable aviation fuel.
The facility is expected to produce 22 million gallons of fuel annually by the end of 2024. The deal will give the copmpany centralized access to the European market.
While the deals signify progress toward Gevo’s sustainability goals, the timeline does raise questions about overvaluation.
Gevo will begin building Net-Zero 1, its first Net-Zero project, this year. The projects are plants which will produce liquid hydrocarbons using the firm’s technology. Net-Zero 1 will be developed on 240 acres of land in Preston, South Dakota. The area is a rich corn producer. Net-Zero 1 is anticipated to produce 45 million gallons per year of jet fuel and gasoline. Also, the site is expected to produce 350 million pounds of high-protein animal feed annually.
The company expects this project to require upward of $800 million in capital expenditures. Gevo believes cash will fund all of the equity necessary for the project. In fact, it predicts that its current cash balance will fund Net-Zero projects 2 and 3.
These projects will fulfill the 48 million gallons per year the company is contracted to supply. The contracts represent $1.5 billion in lifetime value across the projects.
According to its website, Gevo “seeks to secure investment agreements with strategic and financial project investors for Net-Zero projects if terms are attractive. Net Zero projects are moving forward, with planning and front-end engineering determining capital costs for development.”
Financials and GEVO Stock
Gevo does look attractive from the perspective that it carries no debt with a cash balance of $535 million as of January 2021.
The company’s operations are where investors really need to look in order to make an informed decision regarding its investment worthiness. In the three months ended Sept. 30, 2020, it recorded a net loss of $6.836 million. One year earlier that figure was $8.619 million.
So, while the company has many catalysts in terms of future revenue streams, results paint a less-rosy picture. The company has a strong book of business scheduled for the future. However, this means that all of those billions of dollars of revenue in contracts are being priced into shares right now.
I would not buy GEVO stock right now. Everything positive for the company is based on the future. While it looks interesting based on headlines, the financial results aren’t compelling. However, if the company can put together compelling results from its Net-Zero projects which lead to healthy balance sheets, then take a look. For now, stay away.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.