I’ve been handed another assignment to cover a stock I’ve never heard of. Apparently, Gevo (NASDAQ:GEVO) specializes in next-generation zero-carbon-emission fuels for planes, trains and automobiles — I made that last part up because I love John Candy movies — and is a business I ought to know about. More importantly, GEVO stock is up more than 90% year-to-date.
As Charlie Sheen’s character said in Wall Street, “It’s a comer.”
So, as is my practice with newbie stocks, I like to go back to the beginning to see if there’s anything that stands out.
By the end, I’ll decide if it’s worth covering in the future or if it’s ready for the dustbin of history.
GEVO Stock Went Public at $15
According to page 10 of its February 2011 initial public offering (IPO) prospectus, Gevo was founded in June 2005 as Methanotch Inc. It changed its name to Gevo less than a year later. I can’t seem to find a reason for the name change, but more than 15 years later, it’s not material to the story.
Anyway, the company sold 7.15 million shares in its IPO, bringing the shares of GEVO stock outstanding to 24.64 million. Based on a market capitalization of $370 million, pro forma cash of $118 million, and $19 million in total debt, it had an enterprise value of approximately $271 million.
Fourteen years later, its enterprise value is $1.72 billion, a compound annual growth rate of 20.3%. Not bad indeed. Let’s look next at the revenues.
In 2010, Gevo had sales of $16.4 million and an operating loss of $38.5 million. Over 90% of its revenue was from the sale of ethanol. So, ostensibly, it was in the biodiesel business.
In 2020, Gevo generated $5.5 million in revenue, down from $24.5 million in 2019. On the bottom line, it lost $26.3 million, flat to a year earlier. The big drop in sales had to do with its plant’s closure in Luverne, Minn., due to Covid-19.
However, on Jan. 11, the company announced Net-Zero 1, a project that will see it convert renewable energy into energy-dense liquid hydrocarbons that, when burned, produce a “net-zero” greenhouse gas footprint.
The cost of the plant to accommodate the hydrocarbon production is estimated to be $700 million. This is the first of what it hopes are many projects in the future.
I’m still listening.
The Latest Update
On Jan. 22, Gevo updated shareholders about its plans for Net-Zero 1.
It mentioned that it is doing some pre-planning to get a better handle on the project’s ultimate cost. Right now, it’s between $700-$800 million. To help pay for this, it made an at-the-market offering in January at $8 a share, which raised net proceeds of $322 million. It has $535 million in cash on its balance sheet with virtually no debt.
Post-offering, it had 198 million shares outstanding. That’s a 700% increase over the past decade. At the February 2011 IPO, it had an accumulated deficit of $78 million. That’s grown to $498 million at the end of 2020.
The company says its contracts for jet fuel and renewable gas products are approximately $1.5 billion over the life of the contracts. Net-Zero 1 will be able to accommodate those revenues. Citigroup is helping with the financing. It should have its ducks in a row by the middle of 2022.
So, it’s fair to assume sales dollars from its new plant won’t start rolling in until the second half of 2023. In the meantime, it’s got a renewable natural gas (RNG) project that will sell to the California market. That should be online in 2022.
With all the excitement around its future projects, it’s easy to see why Gevo was able to sell almost 44 million shares at $8. That puts a nice floor price on its stock.
The Bottom Line
The great thing about writing about stocks is you learn something new every day.
Today, for instance, I learned that despite having had very little interest in GEVO stock, I’m actually looking forward to learning more about its push for cleaner fuels.
I wouldn’t have said that when I got up this morning.
That said, this is still a highly speculative stock we’re talking about. If you’re at all risk-averse, you have no business getting anywhere near Gevo.
Between $5 and $1o, it’s worthy of investor consideration.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.