Renewable fuels company Gevo, Inc. (GEVO) in Englewood, Colo., recently announced that it had begun bringing its wholly-owned dairy manure-based renewable natural gas project online and expects it to lead to annual distributions of $9 – $16 million. Also, in its December 2021 investor presentation, the company said that it has approximately $3 billion in financeable contracts in place and is negotiating an additional $30 billion in contracts with its “high-quality” customers.

However, its commercial supply arrangements will not begin until 2024. 

The stock has declined 49.4% in price over the past three months and 75% over the past year to close yesterday’s trading session at $3.61. In addition, it is currently trading 76.8% below its 52-week high of $15.57, which it hit on Feb.12, 2021, due to the Reddit-fueled short squeeze. Moreover, GEVO’s gross margin has been negative every year since 2012.

Here is what could influence GEVO’s performance in the upcoming months:

Poor Profitability

In terms of the trailing-12-month asset turnover ratio, GEVO is 99.3% lower than the 0.42% industry average. And the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the 3.94%, 3.73%, and 1.26% respective industry averages.

Unfavorable Analyst Estimates

For the quarter ending March 31, 2022, analysts expect GEVO’s EPS to decrease 40% year-over-year. In addition, its EPS is expected to remain negative for the quarter ending March 31, 2022, and in its fiscal year 2022.

Stretched Valuation

In terms of forward P/S, GEVO’s 626.93x is significantly higher than the 1.58x industry average. And its 353.03x forward EV/S is considerably higher than the 2.54x industry average.

POWR Ratings Reflect Bleak Prospects

GEVO has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. GEVO has an F grade for Quality, which is in sync with its lower-than-industry profitability ratios.

GEVO also has an F grade for Value, which is in sync with its higher-than-industry valuation ratios. In addition, the stock has an F grade for Stability, consistent with its 3.12 beta.

Furthermore, GEVO has a D grade for Sentiment. This is justified because analysts expect its EPS to decline in the near term.

GEVO is ranked #88 of 89 stocks in the Chemicals industry. Click here to access GEVO’s ratings for Growth and Momentum.

Bottom Line

GEVO is currently trading below its 50-day and 200-day moving averages of $4.26 and $6.06, respectively, indicating a downtrend. Because the stock looks overvalued at the current price level, we think it is best to avoid it now.

How Does Gevo (GEVO) Stack Up Against its Peers?

While GEVO has an overall POWR Rating of F, one might want to consider investing in the following Chemicals stocks with an A (Strong Buy) rating: Arkema S.A. (ARKAY), Covestro AG (COVTY), and Kronos Worldwide Inc (KRO).

GEVO shares were trading at $3.65 per share on Friday afternoon, up $0.04 (+1.11%). Year-to-date, GEVO has declined -14.72%, versus a -5.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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