Gevo Inc (NASDAQ: GEVO) is having a rough day in the premarket hours this morning. After climbing more than 70% yesterday, the stock is down over 20% today. The declines seem to be the result of a registered direct offering through which the company expects to raise $350 million.
While dilution is no fun, there’s a good reason for the fund raise. As such, the declines in GEVO stock caused by the news look more like an opportunity than a hindrance. Here’s how I see it:
Skip to What You Want to Read
- Gevo Announces Fund Raise
- Why the Dip Is an Opportunity
- What Analysts Think About GEVO Stock
- Risks to Consider Before Buying GEVO Stock
- Final Thoughts
Gevo Announces Fund Raise
In the press release, Gevo said that it has entered into definitive agreements with institutional and accredited investors for the sale of 43,750,000 shares of common stock. Under the terms of the agreement, the shares will be sold at $8 each in a registered direct offering priced at-the-market under Nasdaq rules.
The company went on to say that the offering is expected to close on January 22, 2020, but is subject to the satisfaction of customary closing conditions.
GEVO said that it will use the about $350 million, minus fees, to fund capital projects, for working capital, and for general corporate purposes.
Why the Dip Is an Opportunity
At first glance, investors are upset. After all, with the sale of shares will come dilution, which reduces value for existing shareholders. However, the offering is actually a good thing, and outlines an opportunity for Gevo and its investors.
Keep in mind, today is inauguration day. Today, Joe Biden will officially become the President of the United States. So, from today moving forward, at least for four years, democrats will run the White House, Congress, and Senat, which is a great thing for GEVO.
Think about it. Joe Biden and his colleagues have been very clear about their views toward clean energy and the need to shift away from the burning of fossil fuels. With energy and fuel being such a highly regulated industry, it’s important that the government is on your side, and for GEVO, that will be the case.
Keep in mind, Gevo developed a technology to create clean fuels from renewable feedstock like wood, corn, and other materials. These fuels burn far cleaner than fossil fuels and have already been validated.
Now, with democrats running Washington D.C., demand for clean energy is likely to rise. GEVO needs to be able to meet that demand.
This fundraise will bring hundreds of millions of dollars through the door. That’s money that the company will use to increase its production capacity in order to meet the compelling increase in demand that’s likely ahead.
The bottom line is that it takes money to make money. We watched as Amazon.com spent massive amounts of money on infrastructure, only to become the king of e-Commerce. Now, GEVO is likely to spend tons of money on infrastructure to become the leader in the production of clean fuels.
So, while the dilution is a concern to many, it will set the stage for leadership as the political climate change leads to a national and potentially world-wide energy revolution. This is great news, and the dip is nothing more than a discounted opportunity to get involved.
What Analysts Think About GEVO Stock
According to TipRanks, analysts seem to love Gevo stock. Currently, there are two analysts weighing in on the stock, both of which rate it a Buy.
Price targets range from $5 per share to $8.25 with an average of $6.63.
While these price targets suggest declines, it’s important to remember that they were provided prior to the results of the 2020 election, the results of which will play a major role in GEVO stock’s growth in the near future. While these price targets are outdated, upon review, I’m expecting for them to be increased.
It’s also important to keep in mind that when you invest, you’re investing your money, not analyst money. So, you should do your own research and never blindly follow the opinion of any expert.
Risks to Consider Before Buying GEVO Stock
If you’re investing, you’re accepting risk, it’s just part of the process. GEVO is no exception to that rule. Before risking your hard earned dollars, consider the following:
- Volatility. Gevo is a stock that’s known for high levels of volatility. This makes timing entrances and exits difficult and should be considered.
- Speculation. Gevo is betting that the world will make a shift toward clean energy and away from the burning of fossil fuels. While the political climate change suggests that this move will happen very soon, any attempt to predict the future is nothing more than speculation, which can be a dangerous basis for an investment decision.
While there are risks to consider, there are risks associated with any investment you make. Even putting cash under your bed comes with inflation-related risks. With that said, I couldn’t be more bullish when it comes to GEVO.
I’ve followed the stock for several years and have been impressed with the work Dr. Gruber and his team have done. Now, it seems as though the company will soon enjoy the fruits of its labor, and bring savvy investors along for the ride. With the political climate change in mind, there couldn’t be a better time to consider an investment in GEVO stock.