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Solazyme IPO: 5 Burning Questions

NEW YORK ( TheStreet) -- This Friday's planned IPO of biofuels company Solazyme (SZYM - Get Report) is getting a lot of attention. Is it just a good short-term green energy-IPO euphoria trade, or a good long-term investment opportunity?

There's evidence from recent IPOs in the green energy space that, in the least, the Solazyme deal could be a good short-term investment. Two companies in the biofuels market went public in the past year that argue in favor of a post-IPO boom for Solazyme, Gevo (GEVO - Get Report) and Amyris (AMRS - Get Report). Gevo, which went public in February, is up 20% since its IPO. Amyris, which went public in September 2010, is up 75% since its IPO.

The performance of these recent biofuel IPOs is reason enough for Solazyme to seize the day. Add the recent rise in the price of oil, which has stabilized around the $100 mark after a pullback, and the company has all the makings of a "buzz" offering. "It's not by accident that Solazyme is looking to do the IPO now," said Lux Research analyst Andrew Soare.

Yet if green energy IPO euphoria has taught investors anything, it's that long-term growth, and sustainable stock market gains, have proven elusive in many cases. In the case of biofuels, the hit or miss nature of a nascent industry remains a key theme. As Lux Research recently noted in a mostly positive view of the biofuel segment growth opportunity, despite years of government incentives, financing, and "a graveyard of failed start-ups, the capacity of bio-based fuels and plastics in the ground today replaces only 3% of fuels and 1% of plastics."

The data on the size of the biofuels market today is the key hurdle: "Even with all the attention from governments, investors and the public, bio-based fuels and materials only occupy a small percentage of total fuel and material consumption," Lux Research stated.

There are some compelling biofuels market growth assumptions, nevertheless. Here are some of the optimistic data points from Lux Research on the biofuels market:

  • The global biofuel capacity will grow 7.8% annually to 53 billion gallons in 2015.
  • Biofuel-based materials will soon grow faster than the opportunity in the fuel market, at 17.7% per year, to reach 8.1 million tons by 2015.
  • The bio-based fuel market is $56 billion, and has grown more than 30% annually since 2005.
  • The materials market currently totals $10.7 billion and has grown 10% a year since 2005.
  • One IPO watcher told TheStreetTV that the Solazyme deal looks like an offering that deserves investor attention.

    "In the short-term, Solazyme and the other stocks in the group should do well, but there are lots of risks as they move closer to commercial scale," said Lux's Soare. "I expect hype will keep their stock prices up for at least the next few quarters," he added.

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