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Why Gevo Inc. (GEVO) Is Popping on Thursday

NEW YORK (TheStreet) -- Gevo Inc. (GEVO) is popping on Thursday on the announcement ethanol producer Porta Hnos S.A. had signed a letter of intent to become the exclusive licensee of Gevo's GIFT(R) technology in Argentina. Gevo is a commercial producer of renewable fuel-source isobutanol.

By midday, Gevo shares had added 6.7% to $1.43.

"Isobutanol's versatility and hydrocarbon-like properties make it an ideal renewable fuel and chemical for Argentina and Gevo's GIFT(R) technology is the most efficient way to produce it," said Porta vice president Fernando Porta in a statement. "Porta is already a leading ethanol producer in Argentina and we would like to expand our footprint to other high-value renewable alcohols such as isobutanol."

"Commercial licenses demonstrate the value of Gevo's GIFT(R) technology to the market place and enables a low-capital route to building out renewable isobutanol capacity globally," added Gevo CEO Patrick Gruber.

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TheStreet Ratings team rates GEVO INC as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate GEVO INC (GEVO) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, deteriorating net income, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, GEVO INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, GEVO has underperformed the S&P 500 Index, declining 24.74% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 31.8% when compared to the same quarter one year ago, falling from -$12.05 million to -$15.89 million.
  • GEVO INC's earnings per share declined by 9.7% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, GEVO INC reported poor results of -$2.01 versus -$1.88 in the prior year. This year, the market expects an improvement in earnings (-$1.47 versus -$2.01).
  • Despite currently having a low debt-to-equity ratio of 0.51, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.89 is weak.

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