Rising concerns over the growing carbon footprint of chemicals, coupled with stringent environmental regulations related to their production and disposal, have been the major factors contributing to the growth of the renewable chemicals market. The global renewable chemicals market is projected to reach $146.8 billion by 2025.

The demand for most chemicals declined sharply in the first half of 2020 due to the COVID-19 pandemic. The industry then witnessed an uneven recovery in the second half, driven primarily by a quick rebound of the renewable chemicals sub-industry.

The stocks of many companies in the renewable chemicals segment are soaring solely on investor optimism. These companies largely lack adequate fundamental strength to justify the price levels of their stocks.

Also, although bio-renewable chemicals manufacturing provides companies with carbon benefits and sustainable options, the poor availability of bio-based raw materials has been a major restraining factor in manufactures’ business growth. Hence, we think overvalued renewable chemicals stocks  Gevo, Inc. (GEVO) and Aemetis, Inc. (AMTX) are best avoided for now.

Gevo, Inc. (GEVO)

GEVO is a renewable fuels company that  commercializes jet fuel, gasoline and diesel fuel that emit reduced greenhouse gasses. The company uses low-carbon renewable resource-based carbohydrates as raw materials and is developing renewable electricity and renewable natural gas for use in production processes.

GEVO’s total revenues have decreased 92.3% year-over-year to $531,000 in the fourth quarter ended December 31, 2020. This is because the company terminated its production of ethanol and distiller grains at its  Luverne Facility in March 2020. The facility will remain closed  until further notice. Also, its  hydrocarbon revenue was affected because of decreased shipments of finished products from the company’s demonstration plant at its  South Hampton Facility. Its loss from operations have increased 12.4% from the year-ago value to $7 million, due primarily to an increase in consulting and personnel costs, while its net loss has risen 164.9% to $18.05 million over that period.

In terms of its forward-12-month ev/Sales, the stock is currently trading at 319.71x, which is significantly higher than the industry average 2.88x. Also, in terms of price/sales, the stock is currently trading at 308.15x, significantly higher than the industry average 1.39x.

Analysts expect GEVO to report a loss per share of $0.03 in the current quarter (ending March 31, 2021). The company missed the Street’s EPS estimates in three out of the trailing four quarters. A consensus revenue estimate of $150,000 in the first quarter indicates a 96.1% decline year-over-year. The stock has lost 26.2% over the past month.

GEVO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

GEVO has an F grade for Value and Stability, and a D for Quality. It is currently ranked #95 in the 98-stock Chemicals industry.

In total, we rate GEVO on eight different levels. Beyond what we’ve stated above, we have also  given GEVO grades for Sentiment, Momentum and Growth. Get all GEVO’s ratings here.

Aemetis, Inc. (AMTX)

AMTX is a renewable natural gas, renewable fuel and biochemicals company focused on the acquisition, development and commercialization of innovative technologies that replace carbon-based products and reduce greenhouse gas emissions. The company owns and operates an ethanol production facility in California’s Central Valley and a high-quality distilled biodiesel and refined glycerin production facility on the East Coast of India.

AMTX’s total revenues have decreased 28.4% year-over-year to $37.33 in the fourth quarter, ended December 31. The decrease in revenue was  attributable primarily to delays in the Indian government’s Oil Marketing Company’s biodiesel tender process, which   delayed revenue generation in its India operations. Also, its ethanol production was lower in North America due to the lack of enforcement of a specific ethanol blending mandate by the U.S. EPA. Its adjusted EBITDA has decreased 388.1% from its year-ago value to negative $6.34 million, while its net loss per share has risen 103% to $0.67 over that period.

The stock has gained 639.8% year-to-date, but its current price  is detached from its  fundamentals. In terms of its forward-12-month price/sales ratio, the stock is currently trading at 1.72x, 23.2% higher than the industry average 1.39x.

Analysts expect AMTX to report a loss per share of $0.50 in the current quarter (ending March 31, 2021). The company missed the Street’s EPS estimates in three  of the trailing four quarters.

AMTX’s poor prospects are apparent in its POWR Ratings also. The stock has an overall F rating equating to Strong Sell in our proprietary rating system. AMTX has a D grade for Quality, Growth, Value and Stability. In the same industry, the stock is ranked #97.

Click here to see the additional POWR Ratings for AMTX (Momentum and Sentiment).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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GEVO shares were trading at $9.25 per share on Thursday morning, down $0.20 (-2.12%). Year-to-date, GEVO has gained 117.65%, versus a 5.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...

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