Gevo Inc (NASDAQ: GEVO) is having a strong start to the trading session this morning, following up on the strong gains seen out of the stock yesterday. It all started when the company announced that it purchased an expansive piece of land that will soon be the home of a clean fuels production facility.
While the land purchase is exciting, it only serves to validate the larger point of value associated with the stock, the world’s shift to clean energy and the likely dramatic increase in demand for clean fuels that’s just around the corner, which is great for GEVO stock.
Here’s what’s going on:
Skip to What You Want to Read
- GEVO Announces the Purchase of Land
- Management Commentary
- There’s Never Been a Better Time for Gevo’s Expansion
- Clean Energy Will Take Center Stage in 2021 and Beyond
- What Analysts Think About GEVO Stock
- Risks to Consider Before Buying GEVO Stock
- Final Thoughts
GEVO Announces the Purchase of Land
As mentioned above, Gevo announced yesterday that it optioned the right to purchase about 239 acres of land. The land, located near Lake Preston, SD, will be the home of a new production facility that’s expected to produce about 45 million gallons of renewable gasoline products and jet fuel per year.
Importantly, this land purchase means that GEVO has met the initial milestone to secure control of a site by the end of 2020 in order to meet conditions required by the August 2020 agreement with Trafigura Trading LLC.
In the release, Gevo said that it will make its final decision with regard to the purchase of the Lake Preston site in the future as part of its Citigroup led project financing.
In a statement, Patrick R. Gruber, CEO at GEVO, had the following to offer:
We like the scale of plant that could be built at the Lake Preston site, it has the potential to produce large amounts of our products. It also has room to expand further, or add other businesses.
There’s Never Been a Better Time for Gevo’s Expansion
Ultimately, now is the best time for GEVO to start expanding rapidly. Yes, from a clean energy perspective, but we’ll talk about that later. What I’m talking about is a COVID-19 perspective.
At the moment, consumers are tired of being cooped up in their homes. As a result, we’re starting to see an increase in flights across the United States, which is expected to ramp up heavily in 2021 as COVID-19 vaccines hit the market.
As the vaccines become widely available and life gets back to normal, consumers are going to want to travel. As a result, demand for jet fuel will likely rise dramatically. That’s great news for GEVO as its flagship product is the renewable jet fuel it produces from the processing of waste feedstock.
Clean Energy Will Take Center Stage in 2021 and Beyond
This is where the story becomes hard to ignore.
Clean energy has been a hot topic over the past several years. However, there hasn’t been much by way of legislative changes to push corporations and consumers alike toward clean energy alternatives.
That’s about to change in a big way.
Recently, Joe Biden won the United States Presidential Election. As a result, his Administration will be moving into the White House very soon. That’s great news for GEVO and the entire clean energy industry.
Throughout the past few years, Biden has been an outspoken proponent of the clean energy movement. Seeing it as a necessity to improve the environmental condition and secure a healthy planet for future generations, Joe Biden is likely to make big moves to push the United States to become a widely clean-energy company.
This means tax cuts and grants for companies that produce clean energy technologies as well as tax benefits for the consumers that take advantage of them. So, moving forward, GEVO can look forward to a lighter tax burden, funding for further research and expansion, and increasing consumer demand.
Again, if there’s ever been a time for Gevo to expand, now is it!
What Analysts Think About GEVO Stock
Analysts seem to love GEVO stock. According to TipRanks, there are currently two analysts covering the stock, both of which rate it a Buy. The low price target on the stock is $3.50 and the high target is $5 for a consensus price target of $4.25. That suggests that there’s room for tremendous growth ahead.
Keep in mind, it’s never a good idea to blindly follow the opinions of anyone, even Warren Buffett. Nonetheless, it is a good idea to use analyst opinions as a way to validate your own, and if you have a strong opinion of GEVO stock, you’re definitely in agreement with analysts.
Risks to Consider Before Buying GEVO Stock
Any time you invest, you’re making a decision to accept a certain level of risk, and GEVO stock is no exception to that rule. In this case, here are the most significant risks investors should consider before diving in:
- Gevo Isn’t Making Any Money. Sure, GEVO is selling its renewable fuels, but every bit of money it generates, and then some, is being spent on its expansion. While this expansion is necessary, it’s also costly. Should the company find itself in a position with little money in the bank and big expenses to cover, it will likely look to raise funds from capital markets, diluting value for existing shareholders.
- Speculation. Gevo’s future success is widely speculative. The idea is that clean energy will take charge, the world will get on board, and demand for the company’s renewable fuels will fly. However, since nobody can tell the future, making an investment decision based on speculation like this is very risky.
- Penny Stock Risk. GEVO is a penny stock, and penny stocks come with risk. For example, most penny stocks, including GEVO, haven’t proven their business model and don’t make any profits. Moreover, these stocks are often riddled with volatility, making timing entrances and exits difficult and often leading to losses.
It’s always important to consider the risk, but the section above wasn’t intended to scare you. The fact of the matter is that I see GEVO as a major opportunity.
The company has been working for years to develop a method for producing clean, renewable fuels on a massive scale. Today, it has the technology and is quickly ramping up to mass market scale.
At the same time, we have an airline market that’s likely to see strong increases in demand and an incoming president that’s likely to implement all tools necessary to push the world toward clean energy. It’s a perfect storm for dramatic gains in GEVO stock ahead.