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For the past two months, Gevo (NASDAQ:GEVO) has moved sideways, trading between $5 and $8 per share. This comes after GEVO stock tried to bounce back amid news of several promising deals for the renewable energy company, which helped to fuel this.
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Unfortunately, it didn’t last long. Investors became impatient. Right now they’re not willing to pay more for shares. This could carry on as its efforts to monetize its technology remain a work-in-progress. So, does this mean skip out on Gevo for now? Not so fast. It’s going to take a few years for everything to play out. That’s a given for this pre-revenue company.
In hindsight, it could end up being well worth the wait. The demand is there for its renewable hydrocarbon products. It’s making supply and production deals to ensure it can meet this rising demand. Although its valuation looks a bit rich now, it has ample upside potential.
As an early-stage company in the green energy sector, this isn’t a stock for just anyone. While holding steady now, I wouldn’t rule out possible volatility. But if you’re looking for “green wave” exposure, and if you can stomach the risks, you may want to give it a closer look.
GEVO Stock and Recent News
So, what’s the latest with Gevo? First, the company’s third-quarter results, released on Nov. 10. For the quarter ending on Sep. 30, the company generated $100,000 in revenue (down from $200,000 in the prior year’s quarter). Operating losses of $14.7 million were well above the operating losses seen in Q3 2020, which were $6.1 million.
However, I wouldn’t base a decision to buy (or not to buy) GEVO stock on these results. Sales may have been down year-over-year. But given it’s still in the pre-revenue stage, this isn’t a big concern. Neither are the company’s increased operating losses for the quarter.
These increased losses aren’t surprising. Gevo is increasing headcount as it moves ahead with Net-Zero 1 and other projects. Also, with $522.4 million in cash (as of Sep. 30), cash burn isn’t an urgent issue. It has more than enough on hand to sustain these losses until it gets out of the pre-revenue stage.
Along with its earnings report, the company has had another development in recent weeks. It has signed another Moratorium of Understanding (MoU) with a supplier. Per this agreement, Sweetwater Energy will supply the company with raw biomass. This biomass will be used to produce sustainable jet fuel (SAF), along with cellulosic alcohols, which are a renewable alternative to petroleum-based packaging materials and resins.
Much Is in Place for its Payoff Moment
The Sweetwater deal may not be doing much to move GEVO stock right now. That makes sense. It’s not as much of a possible game-changer as some other recent developments. For instance, the MoU the company signed with Archer Daniels Midland (NYSE:ADM), to convert ethanol into SAF.
It is yet another example of how Gevo, far from floundering, continues to make progress. More importantly, it’s getting everything in place to experience what I called its payoff moment above. First, it’s moving along in finding customers for its products. According to CEO Patrick Guber, its potential customer contract pipeline for renewable hydrocarbons now tops 1 billion gallons.
Second, it’s making the right moves in terms of having the supplies and infrastructure in place to fulfill this backlog. It is both building out its own fully-owned facilities, plus partnering with a major oil company to build more SAF production facilities.
On top of all this, it stands to lock down more big ticket renewable hydrocarbon supply deals. As the U.S. and other major economies move towards reducing emissions, trends are on its side. Put this all together, and Gevo stands to quickly zoom out of the pre-revenue stage and start producing substantial amounts of revenue. Once this payoff moment approaches, expect its stock price to lift off, as well.
The Bottom Line on Gevo Stock
If you bought Gevo earlier this year, I can understand your frustration. Despite the deals and partnerships it’s entered into in the past year, the market currently seems unimpressed. It’s instead taken a “show me” approach to the stock.
While this view could continue for now, it may not be for long. If it continues to make progress in the coming months, investors could warm back up to it. With this, shares will start moving in the right direction.
Based upon the EBITDA projections for its Net Zero project and the prospect of it signing more customer contracts worth billions, the company could ultimately sport a much higher valuation in the long term.
Even though it’s still out of favor, GEVO stock remains a solid opportunity. GEVO gets a grade of “B” in my Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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