GEVO Stock: These Declines Are an Opportunity

Gevo Inc (NASDAQ: GEVO) is having a rough start in the premarket hours this morning, following up on the declines seen yesterday as investors take profits. Nonetheless, the declines represent a massive opportunity. Here’s what’s going on:

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What Gevo Does

Gevo is a clean fuels company that’s focused on the use of feedstocks like waste wood and waste food as a basis for producing renewable fuels. Currently, the company offers offroad fuels as well as aviation fuels, which are both seeing strong increases in demand. 

As a result, the company has been working to greatly expand production, which it is doing in a big way with a facility that’s under development, known as Net Zero 1. 

At the Net Zero 1 facility, GEVO will not only be able to increase its annual production capacity by millions of gallons of fuel, it will do so without leaving a carbon footprint at all. The facility was designed so that any carbon offset associated with the production of the company’s clean fuels will be offset, which is where it gets its name, Net Zero 1. 

Yet Another Sign of Increasing Demand

Yesterday, a huge announcement was made that further outlines the fact that demand for GEVO fuels will increase. In a press release, the company said that it signed an amendment to increase Scandinavian Airlines System’s minimum purchase obligation to purchase sustainable aviation fuel. 

Under the amendment, Scandinavian Airlines System has agreed to purchase a minimum of 5 million gallons of sustainable aviation fuel per year. 

In the release, Gevo said that with the finalization of the amendment, it expects to supply Scandinavian Airlines System with fuel beginning in 2024. These fuels are expected to come from the Net-Zero 2 Project. 

Importantly, the value of the agreement is expected to be over $100 million through the term of the agreement. This value includes related sustainable aviation fuel and environmental credits. 

It is expected that Scandinavian Airlines System is only one of many customers that will amend agreements to increase minimum purchases of Gevo fuels as demand increases. 

Management Commentary

In a statement, Patrick R. Gruber, CEO at GEVO, had the following to offer:

With this amendment, SAS has significantly increased the amount of SAF that it is willing to purchase from Gevo. This amendment is evidence of the strong and growing demand for Gevo’s renewable hydrocarbon products. We expect to ink additional offtake agreements later this year.

SAS have a vision and plan that they are executing, even in spite of the global pandemic. This additional volume will help Gevo grow its business and hopefully accelerate making real Gevo’s Net-Zero 2 plant. 

The above statement was followed up by Lars Andersen Resare, Head of Sustainability at Scandinavian Airlines System. Here’s what he had to say:

SAS has an ambitious goal in reducing its’ absolute climate affecting emissions by 25 percent from 2005 levels by 2025. This increase of Gevo SAF will help us to reach at least 20% of the SAF needed to reach our emission reductions goal. SAS chooses partners like Gevo that have the vision and ambition to support the aviation industry’s transition to net zero emission.

GEVO Will Be a Big Player in Energy Ahead

While GEVO stock is down in the market this morning, those declines are likely a huge opportunity as the company is likely to become a major player in clean energy ahead. With Joe Biden now the President of the United States and the democrat party in control in Washington D.C., there’s likely to be a major push toward clean energy ahead. 

Much of the carbon footprint causing the environmental concerns in the United States and beyond comes from the burning of fossil fuels in the transportation space. As a result, we’re seeing a big push in the electric vehicles market, but these vehicles come with some issues. 

In particular, for those that drive long distances, electric vehicles don’t make sense. Moreover, for more energy intensive travel models, such as flight, electric options simply aren’t advanced enough to meet the needs of the industry. 

As a result, I believe that there will be an overwhelming demand for clean fuels in the future. 

That’s where GEVO comes in. 

Moving forward, the company will likely benefit greatly from increased demand for its fuels as well as tax credits and grants aimed at companies that are working to make a change in the energy sector. 

Ultimately, when it comes to clean, sustainable fuels, there are a few companies in the field, but none of them are as far along as GEVO. As such, the company is setting the stage to become a long-term leader in the space, which will be overwhelmingly valuable. 

What Analysts Think About GEVO Stock

According to TipRanks, analysts love Gevo. Currently, there are two analysts covering the stock, both of which rate it a Buy. Price targets on the stock range from $16 to $18 with a median of $17 per share. 

With that price target, there’s potential for significant gains in the relatively near term.  

Risks to Consider Before Buying GEVO Stock

Gevo stock is an investment, and like any other investment, it will come with risk. Some of the most important risks to consider before diving into GEVO include:

  • Profitability. Gevo isn’t a profitable company. The company is spending all of the money it makes, and then some, on the expansion of its infrastructure in order to meet increasing demand. So, it has to survive on the money it has in the bank. While that money lays out a long runway, likely about 2 years, if GEVO is unable to achieve profitability by the time the money runs out, it will likely look to raise funds through public offerings, leading to the dilution of existing shareholder value and declines. 
  • Speculation. An investment in GEVO is somewhat of a speculative bet. For Gevo to be successful, the expansion of its infrastructure needs to go well and the company needs to be met with high demand. While all signs are pointing to this taking place, nobody can tell the future, and Gevo is an emerging company with an emerging technology and goals to bring a new fuel to the masses. That’s a tall order and a speculative bet. 
  • Volatility. GEVO stock is known to experience high levels of volatility. This makes entrance and exit decisions more difficult to make and opens the door to significant short-term declines. 

Final Thoughts

Sure, an investment in GEVO will come with risk, but an investment in any company will come with risk. The fact of the matter is that the company seems to be doing all the right things at all the right times. 

As a result, Gevo is seeing increasing demand for its sustainable aviation fuels and signing agreements that will drive millions of dollars in revenue per year in the coming years. 

To say that GEVO stock is an exciting opportunity is a bit of an understatement. 

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