Gevo Inc (NASDAQ:GEVO), an energy company based in United States, saw a decent share price growth in the teens level on the NasdaqCM over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine GEVO’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Gevo
What is GEVO worth?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 0.2x is currently trading slightly below its industry peers’ ratio of 1.6x, which means if you buy GEVO today, you’d be paying a relatively reasonable price for it. And if you believe GEVO should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since GEVO’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much GEVO moves relative to the rest of the market.
What kind of growth will GEVO generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. GEVO’s earnings over the next few years are expected to increase by 81.05%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in GEVO’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at GEVO? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on GEVO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for GEVO, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Gevo. You can find everything you need to know about GEVO in the latest infographic research report. If you are no longer interested in Gevo, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.