RCM Technologies Inc (NASDAQ: RCMT) is screaming for the top in the premarket hours this morning, gaining nearly 100% as a follow up to more than 20% gains yesterday. The gains come after the company announced news surrounding projects to create sanitizer-grade ethanol. Here’s what’s happening:
Skip to What You Want to Read
- RCM Technologies Updates Investors About Ethanol Production
- Management Commentary
- Why Investors Are So Excited
- What Analysts Think About RCMT Stock
- Risks to Consider Before Buying RCMT Stock
- Final Thoughts
RCM Technologies Updates Investors About Ethanol Production
As mentioned above, RCM Technologies is having an incredibly strong start to the trading session this morning, following up on the gains seen yesterday after providing an on its recently obtained projects to assist clients in producing higher grade ethanol.
This higher grade ethanol is designed for use in beverage and hygienic applications, including sanitizer-grade ethanol.
In particular, the projects were awarded to Therma Kinetics, a division of RCMT. The division of the company was contracted by AI-Corn Clean Fuels to expand its existing Fuel Ethanol facility to produce 20 million gallons per year of USP Grade ethanol to meet the growing need within the sanitizer market.
In the release, RCMT said that Therma Kinetics is executing additional products relating to the growing demand for sanitizer-grade ethanol. In fact, the company was contracted by several other customers during the second and third quarters of 2020 to provide detailed design engineering to expand the production of sanitizer-grade ethanol to their existing client base.
In addition to the project with AI-Corn, the company said that the list of projects includes equipment supply to a second customer. Both equipment supply contracts are expected to commence during the first quarter of this year.
RCMT said that three other facilities have contracted Thermal Kinetics to supply a detailed upfront engineering package prior to equipment purchase. The company said that this second group of plants should be operational in the fourth quarter of this year.
In a statement, Chris Brown, President and Founder of the RCM Technologies division, Thermal Kinetics, had the following to offer:
The demand for higher grade ethanol has outgrown product availability due to the current Covid-19 pandemic.
Traditional corn-based ethanol plants require a range of $5 – $10 million in additional equipment to convert fuel-grade ethanol to USP- or GNS-grade ethanol suitable for sanitizers. Thermal Kinetics is well suited for these projects. Our standard ethanol process offers the best steam economy available. We have used similar design engineering principles to ensure the USP- and GNS-grade upgrades offer the most efficient design with respect to energy usage and plant economics. Of particular importance is technology to recover 80% of the energy required from the base fuel ethanol plant. This assures that existing plant infrastructure such as boiler and cooling capacity remain unaffected.
The above statement was followed up by RCMT Engineering Services President, Frank Petraglia. Here’s what he had to say:
The addition of Thermal Kinetics to RCM Technologies has broadened our reach. The Thermal Kinetics engineering group offers value-add solutions that are best in class and adds the equipment supply element to the scope of our projects which we previously did not have. It is exciting to witness the current growth and potential of the Thermal Kinetics Projects Group.
Why Investors Are So Excited
The news released by RCMT is overwhelmingly positive. Keep in mind that for about a year now, the world has been scrambling to win the fight against COVID-19.
As a result of the virus, demand for sanitizers has surged dramatically, and the growth is expected to continue.
In fact, the sanitizer market is expected to grow to be worth $2.1 billion annually by 2027 with a CAGR of 7.5%. As a result, companies in the industry have been leaning on professional service firms and equipment suppliers in order to assist them in delivering quick results.
That’s where RCMT comes in.
The company is the service provider that these companies are leaning on. As a result, it has signed several agreements that will result in significant revenue generation. All in all, this is overwhelmingly exciting news.
What Analysts Think About RCMT Stock
While the retail investing community is all over RCMT stock at the moment, there aren’t many analysts paying attention to the ticker. In fact, there is only one analyst rating on the stock, and that rating is a Hold.
The price target currently sits at $3 per share, representing a more than 10% downside.
Nonetheless, it’s important to keep in mind that analyst views are outdated. At the end of the day, this analyst opinion doesn’t take into account the several new contracts signed by the firm, nor the revenue that these agreements will drive for RCM Technologies.
Risks to Consider Before Buying RCMT Stock
If you’re planning on making an investment in RCMT stock, or any other stock for that matter, you’re going to have to be willing to accept risk. Unfortunately, risk is just part of the process.
When it comes to RCMT stock, the most significant risks include:
- Profitability. First and foremost, while RCM Technologies is generating revenue, it is far from profitability. As a result, the company depends on the money it has in the bank to survive. Should these funds run dry, it will likely look to public markets as a way to raise capital, which will result in dilution and likely significant declines.
- Penny Stock. RCMT is a penny stock. As a penny stock, there are added risks to consider. In particular, the company’s business model hasn’t been fully proven as it has not produced profit to date. Moreover, penny stocks are riddled with volatility, which is great on the upside, but when the stock falls, it’s known to fall hard, which could lead to significant short-term losses.
- Continued Demand. Much of the excitement surrounding RCMT at the moment has to do with COVID-19. Some suggest that with vaccines hitting the stage and numbers falling drastically, demand in this area will begin to taper off relatively soon. While I’m on the other side of the coin, the one that believes that even if COVID-19 were to disappear today, demand for sanitizers and hygiene products will likely continue to climb for the foreseeable future, that’s a speculative bet, which makes it a risky bet.
While there are risks to consider before diving into RCM Technologies, you show me a stock without risk and you have a buyer. The simple fact is that there isn’t one.
At the moment, things seem to be going in the right direction for the company. With multiple contracts that are likely to generate significant revenues, and demand likely to continue in the upward direction, RCMT stock is one to watch closely.