Renewable Energy Group Hitting All-Time Lows

| About: Renewable Energy (REGI)
This article is now exclusive for PRO subscribers.

If you like small companies that might be undervalued, take a look at Renewable Energy Group (NASDAQ:REGI). REGI is a US company that produces biodiesel. The company produces 200 million plus gallons per year and is currently expanding production.

REGI produces their biodiesel from fats, oils and greases. The Company has been in business for 16 years and went public in January at $10 per share. REGI hit an all time low today of $5.21 and reports earnings on August 14.

Analyst estimates from Yahoo for the year ending December 2012 range from $0.90 to $1.45, with an average estimate of $1.20. That is down from $1.50 ninety days ago. For December 2013, the estimate is $1.86, with a range of $1.41 to $2.41, that is down from $2.34 ninety days ago. The drop in estimates may be the result of anticipated higher expenses that are working their way through the agriculture complex. But if we are just working with the low estimates, the stock is selling at about 6x 2012 earning and 4x 2013 earnings.

Taking a look at the balance sheet from the 10Q as of 3/31/2012, the Company had working capital of $126,422,000 and equity of $309,871,000. Using the reported number of diluted shares of 30,917,291 equates to working capital per share of $4.09 and equity of $10.02 per share. At the current price of $5.21, REGI is selling at just 127% of working capital per share and at 52% of book value.

JMP Securites started coverage of REGI on 7/10/2012 with a "Market Outperform." As reported by, Cannacord Genuity maintained a "buy" rating on the stock on 6/1/2012. Analyst John Quealy, said:

In terms of first-generation producers, we continue to favor Renewable Energy Group, with a profitable platform, even as Q1 seasonally weak trends linger and the lack of a renewable volume obligation (RVO) modestly lowers visibility into H2/12...We spent time marketing with CEO Dan Oh and CFO Chad Stone yesterday and come away impressed with the strategy and ability to execute in a volatile environment. Near term, the pending lock-up expiration (July 16) will keep shares range-bound, in our view.

This is a small company and volume is light, so I would consider the stock risky and you would be down almost 50% if you got in at the IPO price. The big drop in the price of the stock may reflect information that I don't know about, but it is likely that the drop in the price is due to higher anticipated expenses due to the drought as well as the expiration of the lock-up. Both situations are temporary in nature.

The balance sheet might provide some cushion to the falling price. If the projected earnings turn out to be in the ballpark the Company looks like a good value here. I have bought some small positions in the stock in the last week as it has declined.

Disclosure: I am long REGI.