Gevo Has Finally Reached Levels That Make The Shares Attractive
Summary
- Green Energy is one of the macro-trends that we are heavily invested in, along with Lithium-ion battery recycling and functional beverages that address the growing global Type-2 diabetes epidemic.
- Recently, we decided to take another look at Gevo, Inc. after the stock price declined to levels not seen since December of 2020.
- The recent ATM offering of 33,333,333 shares at a price of $4.50, along with 5-year warrants at an $4.37 exercise price was met with extreme disapproval by the market.
- After this capital raise, the company sports a balance sheet with a war-chest of over $555 million in cash and cash equivalents.
- The average price target among five Wall Street analysts is $16.67 which implies a price gain over the next twelve months of almost 568%, based on a closing price of $2.49 on Friday.
Scharfsinn86/iStock via Getty Images
If you've been following Altitrade Partners, for any length of time, you know that we are focused primarily on the micro-cap space and finding public companies that met the criteria for long-term investments in developing global macro-trends.
Our latest micro-cap idea that we are very bullish on is Gevo, Inc. (NASDAQ:GEVO).
We believe that shares of Gevo, Inc. have bottomed and at current price levels present a very favorable risk-reward proposition, at this particular time, for speculative accounts.
After bringing Celsius Holdings, Inc. (CELH) to the attention of investors, in early 2015, when its shares were selling for around $0.50 cents, we have continued our quest to find other micro-cap ideas that we believe are worthy of consideration by investors with an extremely high risk tolerance.
Micro-cap investing is very risky and the 14,886% price gain over the past 10 years in CELH stock should not be considered an indication of what to expect from the micro-cap ideas that we present to investors on Seeking Alpha and our blog page. Past performance does not guarantee future results.
We always like to provide these cautionary notes in our micro-cap articles:
Micro-cap stocks carry additional risks beyond those of higher classes of securities including, but not limited to trading outside of a listed exchange, potential liquidity issues, dealing with penny-stock rules, lack of margin eligibility, a possible absence of transparency regarding BBBO quotes, a limited number of Market Makers willing to provide depth to the order book, potential issues regarding financing activities, inadequate capital to execute on the company's business plan, going concern caveats, and the potential inability to compete with larger companies due to limited financial and personnel resources. Please invest responsibly. We encourage individuals to only invest what they can afford to lose, up to a maximum of 100% of their investment.
While we have been watching Gevo's progress over the years, we were hard pressed to commit to a sizable investment stake in the company. We traded a few shares here and there, but always held off on making a big commitment.
That is until now.
When the shares hit a high of $15.57 in February of 2021 and the stock message boards were buzzing about the company and novice investors were posting YouTube videos explaining why the stock was "going to the moon", we knew that we were watching a crescendo in price.
What a difference almost 16 months makes. Today, the stock message boards are like ghost towns, with hardly any activity, and there is only one individual appearing on YouTube posting videos about Gevo.
We tend to be contrarians when it comes to investor psychology and we find comfort in knowing that the shares have very few friends right now, despite a great deal of progress on a number of fronts during the last 16 months.
This progress includes a number of promising partnerships and collaborations with companies such as Archer Daniels Midland (ADM), Chevron (CVX), British Petroleum (BP) and Koch Project Solutions.
In addition, Gevo has signed contracts for future delivery of Renewable Fuels, including Sustainable Aviation Fuel, with a number of high-profile airlines, including Scandinavian Airlines System, Delta, oneworld® Alliance Members, which includes names such as American Airlines, British Airways, Qantas, Cathay Pacific, Air Canada, Canadian Airlines and, most recently Gevo signed a contract for SAF with Japan Airlines.
Here is a smattering of the progress that we have witnessed:
- Gevo Inks Largest Supply Agreement To-Date for Renewable Fuels
- Gevo and Sweetwater Energy Sign MoU to Supply Lignocellulosic Feedstocks to Produce Cellulosic Alcohols and Sustainable Aviation Fuel
- ADM, Gevo Sign MoU to Produce up to 500M Gallons of Sustainable Aviation Fuel
- Gevo and Axens Ink Alliance for Ethanol-to-Jet Technology and Sustainable Aviation Fuel Commercial Project Development
- Chevron, Gevo Announce Intent to Pursue Sustainable Aviation Fuel Investment
- Gevo to Sell Renewable Natural Gas to BP
- Gevo Set to Join Russell 3000® Index
- Gevo and Scandinavian Airlines System Amend Agreement to Increase Off-Take of Sustainable Aviation Fuel, valued at over $100 Million
- Koch Project Solutions to Execute Gevo Expansion Projects
- Japan Airlines Enters into New Fuel Sales Agreement with Gevo for 5.3 Million Gallons of Sustainable Aviation Fuel Per Year Over Five Years
- Delta Air Lines Signs 75 Million Gallon Per Year Agreement with Gevo
- oneworld Alliance Members Plan to Purchase Up To 200 Million Gallons of Sustainable Aviation Fuel Per Year From Gevo
All of these significant developments and announcements have happened in 2021 and 2022. Yet Gevo's stock price has declined precipitously during that period, going from an all-time high of $15.57 to a current price of just $2.50.
What finally pushed us to a "call for action" was the stock market's horrendous reaction to the company's announcement of a $150 million financing deal to raise additional capital, and the subsequent opportunity for us to deploy an options strategy which we find to be very attractive.
When the announcement of the capital raise hit the newswires, Gevo, Inc. stock immediately fell out of bed and began what became an almost uninterrupted downward price spiral that took the shares lower by roughly one-third; from its previous closing value of $4.57 to just $3.20 by the end of that day.
Gevo 2-year chart (Fidelity Active Trade Pro)
The offering stated that it was for 33,333,336 shares of common stock, at a public offering price of $4.50 per share. The accompanying five-year warrants would carry an exercise price of $4.37 a share.
Screenshot of SEC Filing For Gevo Offering (SEC Filings)
According to the company's most recent 10-Q prior to the offering, Gevo had cash and marketable securities, valued at roughly $310 million.
H.C. Wainwright acted as the placement agent for the offering, with Citigroup acting as capital markets advisor to the company.
On June 16th, the company announced the closing of the aforementioned financing deal, with the company successfully raising $139.2 million, after accounting for all expenses associated with the offering.
Screenshot of Closing of Gevo Offering (SEC Filings)
Post-offering, the company now has $555 million in cash and marketable securities on the balance sheet.
Then just last Friday, around midday, things got even more interesting.
At 12:41 EST, we saw a Benzinga alert cross the newswires after some rather unusual options activity in the GEVO July expiration series, with someone coming into the market and buying 2,350 contracts of the July 15, 2022 $2.50 calls at $0.35 each, representing a notional value of $82,250.
Gevo Options Trading Alert From Benzinga (Benzinga)
The expiration of those options contracts are only 28 days away.
Essentially, someone is betting that between now and the July 15th expiration date, GEVO stock will be worth at least $2.85 a share. The buyer would breakeven at that price, so one has to assume that the buyer anticipates the shares will be worth more than the $2.85 at expiration on July 15th.
Below is a screenshot of the time and sales of those options being purchased and sold.
Gevo Options Time & Sales Screenshot (Fidelity Active Trader Pro)
We are very positive on the long-term macro-trend for clean/green energy companies and have focused our investments in two companies that we feel are positioned to take advantage of this growing mega-cycle.
Those two companies are Blue Biofuels (OTCQB:BIOF) and Gevo, Inc.
While our bullish perspective for Gevo is more long-term in nature, someone is obviously very bullish on the short-term prospects for GEVO, since they were willing to spend $82,250 on a boatload of July 15, 2022 calls that expire in just 28 days.
While we never make predictions or specific projections on price for any of our micro-cap ideas, it is generally the job of Wall Street analysts to do their best at attempting to forecast a 12-month price target for companies that they follow in their respective sectors and industries.
When it comes to Gevo, there are five Wall Street analysts that follow the company. The most conservative estimate calls for a 12-month price target on Gevo shares of $5.00, while the most optimistic stock price projection for GEVO over the next year is $18.00.
This works out to an average group consensus number of $16.67. At a current price of $2.50 for Gevo stock, this would translate into 568% return within the next 12 months.
Analyst's Consensus Ratings For Gevo (TipRanks) Analyst's Consensus Ratings For Gevo (TipRanks)
From a technical perspective, we feel that there are a number of reasons why the stock looks attractive. The shares are now 33% below their 50-day moving average and 49% below the 200-day moving average.
The RSI (Relative Strength Index) currently has a reading of 32.70, which is very close to an oversold condition, generally confirmed when the RSI reaches a reading of 30.
The MACD (Moving Average Convergence Divergence) has also rolled over to a very negative reading and appears to be signaling that the shares are over-extended on the downside.
1-year Stock Chart For GEVO (Stock Charts)
There are certainly a number of risks for Gevo which could derail such rosy analyst projections and negatively affect the dynamics for the company.
Some of these risks include, but are not limited to, increased industry competition, changes in EPA policy around the current generous RIN credits for ethanol producers, legislative changes which are less favorable to green energy in general, the development of new technologies that could negatively impact existing methods used to reduce the carbon footprint on the environment, as well as the obvious risks of management failures and the inability to continue to raise capital on favorable terms.
Investors should always weigh the risks versus the rewards before committing capital to any investment idea, no matter how attractive it looks.
Given the large amount of cash and cash equivalents on the balance sheet, along with the severe correction in the value of Gevo shares, we tend to lean towards the view that we have seen a short-term bottom in price, and that an investor with a long-term time horizon will realize a very favorable return on Gevo shares over the next 3-5 years.
This article was written by
Disclosure: I/we have a beneficial short position in the shares of GEVO PUT OPTIONS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclosure: I am/we are short GEVO cash-secured puts and long shares of BIOF.
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GEVO may need to raise additional capital in the future, to continue with its strategic business plan. There, however, can be no assurance that they will be successful in obtaining such financing, on favorable terms. If the company is successful in raising capital, it could result in dilution to existing shareholders, by increasing the total number of common shares outstanding. The company's financials are available to investors through publication in the company's quarterly and annual reports and SEC filings. We strongly encourage investors to read these financial statements and always take them into consideration when deciding whether to invest in the equity securities of any company.
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Micro-cap stocks carry additional risks beyond those of higher classes of securities including, but not limited to trading outside of a listed exchange, potential liquidity issues, dealing with penny-stock rules, lack of margin eligibility, a possible absence of transparency regarding BBBO quotes, a limited number of Market Makers willing to provide depth to the order book, potential issues regarding financing activities, inadequate capital to execute on the company’s business plan, going concern caveats, and the potential inability to compete with larger companies due to limited financial and personnel resources. Please invest responsibly. We encourage individuals to only invest what they can afford to lose, up to a maximum of 100% of their investment.