Although advanced biofuel specialist Gevo (NASDAQ:GEVO) suffered a rough go of it so far this year, the May 4 session gave speculators something to smile about. In part, Federal Reserve chair Jerome Powell delivered a perhaps successful balancing act, raising rates to address inflation as promised while indicating that the central bank wasn’t actively considering going bonkers with its hawkish intentions. That helped GEVO stock move higher, as it did many other technology-related companies, as well.
But it wasn’t just fortuitous developments that have risk-tolerant investors taking another look at the innovative firm. In late March, Gevo announced that it signed a “take-or-pay” agreement with Delta Air Lines (NYSE:DAL) to “supply 75 million gallons of sustainable aviation fuel (SAF) per year for seven years.” In many ways, such a partnership couldn’t have come at a better time.
Although inflationary pressures have impacted virtually all consumer sectors, rising prices have been particularly devastating to industries dependent on hydrocarbons. Certainly, the geopolitical flashpoint in eastern Europe didn’t help matters, resulting in energy costs in the U.S. rising 32% year-over-year in March 2022. In turn, this circumstance affects both the broader transportation sector, as well as national security. Therefore, Gevo appears to be in a prime position to offer much-needed alternative solutions.
However, the complexity with GEVO stock is that the underlying proposed resolution could also be the problem. Although biofuels represent a promising alternative to fossil fuels, they feature a robust set of pros and cons. One of them is the land resources that biofuel generation requires, which may then impinge upon pricing structures for stable crops.
Unfortunately, food prices represent the second-biggest cost increase in the U.S. next to the ramp-up in the energy bill. Thus, the biofuel aspect undergirding GEVO stock might cause problems in other economic areas. Ultimately, Gevo is an intriguing idea and may be appropriate for certain risk-tolerant speculators. But those worried about volatility should steer clear.
On the date of publication, Josh Enomoto 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.