Energy Industry: A Dive Into Gevo Inc (NASDAQ:GEVO)
Gevo Inc (NASDAQ:GEVO), a US$33.8m small-cap, is an oil and gas company operating in an industry which has endured a continued decline in oil prices since mid-2014. However, Energy-sector analysts are forecasting for the entire industry, a strong double-digit growth of 20.2% in the upcoming year , and a massive growth of 67.9% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the oil and gas sector right now. Below, I will examine the sector growth prospects, and also determine whether Gevo is a laggard or leader relative to its energy sector peers.
See our latest analysis for Gevo
What’s the catalyst for Gevo’s sector growth?
In the past five years, the energy industry growth has been negative 40%, resulting from the oil price crash. Only now has the sector begun turnaround, and in the prior year, saw growth in the twenties, beating the US market growth of 15.5%. Gevo lags the pack with its lower growth rate of 20.2% over the past year, which indicates the company has been growing at a slower pace than its energy peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Gevo poised to deliver a 16.6% growth compared to the industry average growth rate of 20.2%. As an industry laggard, Gevo may be a cheaper stock relative to its peers.
Is Gevo and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 12.52x, lower than the rest of the US stock market PE of 19.88x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Furthermore, the industry returned a higher 13.1% compared to the market’s 10.6%, potentially illustrative of a turnaround. Since Gevo’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Gevo’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Gevo’s industry-beating future is a positive for investors. If Gevo has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the energy industry. However, before you make a decision on the stock, I suggest you look at Gevo’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has GEVO’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Gevo? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
