Renewable fuels company Gevo, Inc. (GEVO) operates through the four broad segments of Gevo; Agri-Energy; Renewable Natural Gas; and Net-Zero. The company engages in the commercialization of gasoline, jet fuel, and diesel fuel and aims to achieve zero carbon emissions in the future.

On June 6, the company announced that it had entered into definitive agreements with several institutional investors for the purchase and sale of 33.33 million of its common stock and accompanying warrants for buying another 33.33 million more in exchange for capital that the company intends to use for its general operations. However, with the deal expected to dilute current shareholders’ stake in the company, the stock price plummeted on the news.

GEVO’s stock has declined 31.3% year-to-date and 4.6% over the past month to close yesterday’s trading session at $2.94. It has declined 35.9% over the past five days.

Here are the factors that could affect GEVO’s performance in the near term:

Bleak Bottom Line

For the fiscal first quarter ended March 31, GEVO’s loss from operations increased 61.5% year-over-year to $15.96 million. Non-GAAP net loss rose 56.7% from the prior-year quarter to $15.67 million. Non-GAAP adjusted net loss per share came in at $0.08, up 60% from the same period the prior year.

Stretched Valuations

In terms of its forward EV/Sales, GEVO is currently trading at 83.00x, 3,658% higher than the industry average of 2.21x. The stock’s forward Price/Sales multiple of 128.39 is 7,598.1% higher than the industry average of 1.67.

Unfavorable Analysts Expectations

The consensus EPS estimate of a negative $0.09 for the fiscal quarter ending September 2022 indicates a 28.6% year-over-year decrease. Street EPS estimates for the current year (fiscal 2022) and the next year (fiscal 2023) of a negative $0.35 and a negative $0.42 reflect a decline of 16.7% and 20% from their respective prior years. Moreover, GEVO has missed consensus EPS estimates in three out of the trailing four quarters.

Negative Profit Margins

GEVO’s trailing 12-month ROTC and ROA of a negative 6.22% and 10.15% are substantially lower than their respective industry averages of 5.13% and 3.23%. Its trailing 12-month ROE of a negative 11.47% compares to the industry average of 10.62%.

POWR Ratings Reflect Bleak Prospects

GEVO’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong 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 a Value and Quality grade of F in sync with its high valuations and negative profitability margins. The stock has an F grade for Stability, consistent with its five-year monthly beta of 3.20.

In the 91-stock Chemicals industry, it is ranked #89. The industry is rated A.

Click here to see the additional POWR Ratings for GEVO (Growth, Momentum, and Sentiment).

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages, indicating a downtrend. Moreover, the stock looks overvalued at its current price. And, with analysts expecting its bottom line to remain in the red at least until the next year, I think the stock might be avoided now.

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

While GEVO has an overall POWR Rating of F, one might consider looking at its industry peers, Valhi, Inc. (VHI) and Sisecam Resources LP (SIRE), which have an overall A (Strong Buy) rating, and Westlake Corporation (WLK) and Arkema S.A. (ARKAY), which have an overall B (Buy) rating.

GEVO shares closed at $2.82 on Friday, down $-0.12 (-4.08%). Year-to-date, GEVO has declined -34.11%, versus a -17.67% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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