Gevo, Inc. (NASDAQ: GEVO) is having an incredibly rough start to the trading session in the pre-market hours this morning. However, when you dig for news, the only thing you’re likely to find has to do with the company entering into a new revenue-generating contract. Nonetheless, there’s a good reason for the declines this morning. Today, we’ll talk about:
- The new, revenue-generating contract;
- the form 424B5 that was filed by GEVO;
- what we’re seeing from the stock as a result; and
- what we’ll be watching for ahead.
GEVO Announces New Supply Agreement
As mentioned above, if you look for news having to do with Gevo this morning, chances are that the first thing you’ll find has to do with a new supply agreement. In a press release issued early this morning, the company announced that it has entered into a long-term agreement to supply renewable jet fuel, known as alcohol-to-jet fuel (ATJ), to Avfuel Corporation. The agreement has an effective date of July 1, 2018, and will likely drive substantial revenue, as Avfuel services more than 3,000 locations around the world. In a statement, Patrick Gruber, CEO at GEVO, had the following to offer:
We are pleased to have a customer and partner like Avfuel. Avfuel has tremendous reach with more than 650 Avfuel-branded locations and 3,000-plus fueling locations worldwide to a vast scope of customers. We appreciate its vision and leadership in working with us to bring a better and more sustainable fuel to the market place. Not only can we reduce greenhouse gas emissions, but we also can produce a higher quality product than petroleum-based jet fuel from a technical standpoint. The whole supply chain should benefit, as well as the end customer. This contract with Avfuel is an excellent first step and will serve as a catalyst for Gevo to build up the aggregate demand so we can proceed with the development of a larger scale ATJ facility.
That’s Great News… Why Is The Stock Falling?
It was interesting how this was done, but ultimately investors are looking past the news. You see, on the same day that it publicly released the above news, it quietly filed a form with the SEC. That is form 424B5, which is a prospectus form, ultimately informing investors of new shares that are being offered. In the form, GEVO said that it entered into an agreement on February 13th that was amended on June 20th with H.C. Wainwright. The agreement relates to shares of common stock offered by a prospectus, which the form filed this morning amended. Ultimately, the form surrounds an offering of up to $10,000,000 in shares. Of course, this is incredibly dilutive news, which is ultimately the reason for the declines.
What We’re Seeing From The Stock
As we know, the news moves the market. In this case, however, we have news on both sides of the fence. On a positive note, GEVO is now a supplier of ATJ fuels to a massive new partner. On the other hand, shareholders are currently getting the short end of the stick, as their shares will be diluted through an offering of up to $10,000,000 in shares. In this case, investors see the negative news outweighing the positive news, ultimately leading to declines. Of course, our partners at Trade Ideas were the first to alert us to the movement. Currently (9:04), GEVO is trading at $10.80 per share after a loss of $1.73 per share (13.81%) thus far today.
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What We’ll Be Watching For Ahead
Moving forward, there’s quite a bit to watch for with regard to GEVO. First and foremost, we’re interested in following the company’s revenue growth following the recent news that the EPA has approved a stronger blend of isobutanol to gasoline for on-road use. We’ll also be watching the performance of the supply agreement that was announced today as well as any news surrounding the dilutive offering outlined in the amended prospectus released this morning. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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