Why GEVO Stock Is a Buy Even After Recent Share Offering | Utradea
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Today we are looking at Gevo, Inc. (NASDAQ: GEVO), to determine if you should buy GEVO stock. We will look at GEVO financial ratios, analyst ratings, and current valuation to determine a GEVO Stock forecast for 2025.
What Does GEVO Do?
Gevo, Inc. operates as a renewable fuels company. It operates through four segments: Gevo, Agri-Energy, Renewable Natural Gas, and Net-Zero. The company commercializes gasoline, jet fuel, and diesel fuel to achieve zero carbon emissions, and reduce greenhouse gas emissions with sustainable alternatives. Its products also include renewable gasoline and diesel, isooctane, isobutanol, sustainable aviation fuel, renewable natural gas, isobutylene, ethanol, and animal feed and protein.
GEVO Stock Analysis and Forecast
Gevo, Inc. Competition and Comparables
In order to undergo a comparable analysis (to determine GEVO stocks value), we need to first outline who GEVO’s competitors are.
These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to GEVO, and have a market cap similar to GEVO (if possible).
By keeping this in mind, I found the following list of companies to be some of GEVO stocks closest competitors:
GEVO Stock News
“Gevo entered into definitive agreements to undertake a registered direct offering $150 million, prior to deducting offering expenses and assuming none of the warrants issued in the offering are exercised for cash.
The offering includes 33,333,336 shares of Gevo common stock, and accompanying warrants to purchase up to an aggregate of 33,333,336 additional shares of common stock (max 66.66M shares offered), at a public offering price of $4.50 per share. Furthermore, the warrants have an exercise price of $4.37 per share, are immediately exercisable upon issuance and will expire five years following.
The offering is expected to close on or about June 8, 2022.”
If you would like to keep reading more about this offering, you can do so here
Analysis of Gevo Earnings, Stock Performance and Financial Ratios
GEVO Earnings (Yearly):
- GEVO Revenues: In FY 2021, GEVO experienced a yearly decrease in revenues of $-4.6M (or -86.61%) resulting in a total revenue figure of $711k.
- GEVO Cost of Revenues: In FY 2021, GEVO experienced a yearly decrease in their cost of revenues of $-2.84M (-18.92%), resulting in a total revenue figure of $12.16M. Since the decrease (of -18.92%), in GEVO’s cost of revenue was greater (by 67.69%) than the decrease (of -86.61%) in GEVO’s revenues, we should expect that GEVO experienced an decrease in their FY gross profits.
- GEVO Gross Profit: In FY 2021, GEVO experienced a yearly decrease in their gross profit of $1,761,000 (or -18.17%) resulting in a total gross profit of $-11.45M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY.
- GEVO EBITDA: In FY 2021, GEVO experienced a yearly decrease in their EBITDA of $21,637,000 (or -67.22%) resulting in a total EBITDA of $-53.82M.
- GEVO Net Income: In FY 2021, GEVO experienced a yearly decrease in their net income of $-59203000–40186000 (or 47.32%) resulting in a total net income of $-59.2M.
Overall, in 2021 GEVO earnings were rather poor, however, have they been able to bounce back and report better earnings in more recent earning reports? Let’s find out…
Gevo Earnings (Quarterly):
- GEVO Revenues: In Q1 2022, GEVO experienced a quarterly increase in revenues of $178k (or 329.63%) resulting in a total revenue figure of $232k.
- GEVO Cost of Revenues: In Q1 2022, GEVO experienced a quarterly increase in their cost of revenues of $286k (7.34%), resulting in a total revenue figure of $4.18M. Since the increase (of 7.34%), in GEVO’s cost of revenue was lesser (by -322.29%) than the increase (of 329.63%) in GEVO’s revenues, we should expect that GEVO experienced an increase in their Q1 gross profits.
- GEVO Gross Profit: In Q1 2022, GEVO experienced a quarterly decrease in their gross profit of $-108,000 (or -2.81%) resulting in a total gross profit of $-3.95M. This decrease is not consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4.
- GEVO EBITDA: In Q1 2022, GEVO experienced a quarterly increase in their EBITDA of $550,000 (or 3.75%) resulting in a total EBITDA of $-14.23M.
- GEVO Net Income: In Q1 2022, GEVO experienced a quarterly increase in their net income of $840,000 (or 5.09%) resulting in a total net income of $-15.67M.
- GEVO EPS: Despite GEVO’s increase in net income of $840,000, GEVO’s EPS remained at $-0.08 for Q1 2022 (same as Q4 2021).
Overall, the more recent GEVO earnings had a better financial performance as many of their financial metrics grew, most notably their revenues by 330%, as well as their net income by 5%, and other metrics (as you can tell from the above bullet points).
However, GEVO stock missed their EPS estimate by $0.01 (or -14.29%), as they reported an EPS of $-0.08 for the quarter (compared to their estimated EPS of $-0.07). This is unfortunate, but is a relatively small miss.
Is GEVO Share Dilution an Issue?
As part of their Q1 2022 earnings release, GEVO stated that they currently have 201.93M Shares Outstanding (weighted average), which is up 33,151 shares (from 201.89M shares outstanding in Q4 2021). This is negligable and is nothing to worry about.
Furthermore, GEVO stock has up to 0 of shares that they can issue (thereby diluting GEVO’s stock). This maximum dilution for the period would only have a dilutionary effect on GEVO of 0%, which in theory is good. However, we know this to be false as they just completed an offering of $150M+ as mentioned previously.
Latest GEVO Stock Analyst Ratings
Here is the current analyst rating distribution for GEVO. In total there are 17 GEVO stock analyst ratings.
Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if GEVO stock is a buy or sell
GEVO Stock Rating and Forecast
Currently, we have 3 financial ratings that help investors get a general idea of a company’s valuation. These 3 metrics include DCF, ROE, and P/E, which are very common in the investing/valuation climate.
Firstly, GEVO stock has a DCF rating of 5 — Very Strong. DCF ratings determine the value behind a company based on their financial projections, expectations, and discount rate (time value of money). This is one of the most used valuation models in the stock market, and thus a high level of importance should be associated with this rating. This DCF Rating is based off of their GEVO stock prediction in 2025.
Secondly, GEVO stock has an ROE rating of 3 — Neutral. GEVO’s current ROE is -11.69%, which justifies their rank of 3 — Neutral. ROE shows us how good (or bad) a company is at using their shareholders funds to generate money (returns). ROE is most useful when compared against the industry average, which is currently 2.67%. Considering GEVO’s ROE is both negative and well below their competitors’ average, I think that Gevo should have an ROE rating of 1 — Very Weak.
Lastly, GEVO stock has a P/E rating of 1 — Very Weak. GEVO stock price to earnings ratio is currently -14.24 which justifies their rank of 1 — Very Weak. Price to Earnings is the most commonly found financial metric and is best used when comparing a company’s p/e to the industry average. GEVO operates in the Specialty Chemicals industry, which currently has an average P/E of -13.45. Due to the fact that GEVO’s P/E is negative but close to that of their peers I would give Gevo a P/E rating of 2 — Weak.
Overall, based on the 3 previously mentioned fields, GEVO stock has been given a comprehensive rating of 3 — Neutral. This rating implies that they are Average financially.
GEVO Stock Price Prediction 2025
The Latest GEVO Ratings
As we know, GEVO stock has been given an overall rating of 3 — Neutral This implies that GEVO is okay fundamentally and is a somewhat good candidate for being “undervalued”. With this in mind, let’s proceed.
GEVO Price Prediction 2025 using a Comparable Analysis
- Price to Book (P/B): GEVO’s current P/B ratio is 1.73, compared to the average P/B ratio of GEVO’s peers being 2.48. This implies that GEVO is undervalued and their share price should change by a factor of 43.45% to be at fair value (based on GEVO’s P/B compared to the P/B of their peers).
- Price to Equity (P/E): GEVO stock P/E ratio is currently -14.24, compared to the average P/E ratio of GEVO’s peers being -13.45. This implies that GEVO is overvalued and their share price should change by a factor of -5.52% to be at fair value (based on GEVO’s P/E compared to the P/E of their peers).
Overall, GEVO stock is undervalued and needs to experience a change in stock price of (an average of) 18.97% to be considered “at fair value”. This indicates that the current Gevo price target is $3.78.
Is GEVO Stock a Buy or Sell?
Overall, due to the overall stock rating of 4 — Strong (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that GEVO was undervalued and need to experience a price change of 18.97% in order to be at their fair value, I have concluded the following:
I think that GEVO’s recent dip (due to their share offering) has presented us with a great buying opportunity. I would consider taking a short-term position as a “bounce play” as I am not comfortable holding GEVO Stock over the longer-term. Furthermore, our Gevo price target is currently $3.78.
Originally published at https://utradea.com.