Over the past six months, Gevo’s shares (currently trading at $1.56) have posted a disappointing 15% loss, well below the S&P 500’s 10.5% gain. This might have investors contemplating their next move.
Given the weaker price action, is now the time to buy GEVO? Find out in our full research report, it’s free.
Why Does Gevo Spark Debate?
Operating one of the largest dairy-based renewable natural gas facilities in the United States, Gevo (NASDAQ: GEVO) produces sustainable aviation fuel and other renewable hydrocarbon fuels from plant-based feedstocks like corn.
Two Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Luckily, Gevo’s sales grew at an incredible 176% compounded annual growth rate over the last five years. Its growth beat the average energy upstream and integrated energy company and shows its offerings resonate with customers.
2. EBITDA Margin Rising, Profits Up
Adjusted EBITDA margin captures the true operating profitability of an energy producer by removing accounting noise around depletion and capitalized drilling costs. It reveals how much cash the asset base generates before capital structure and reinvestment requirements shape reported earnings.
Gevo’s EBITDA margin rose over the last year, as its sales growth gave it operating leverage. Its EBITDA margin for the trailing 12 months was 19.2%.
One Reason to Be Careful:
Cash Burn Ignites Concerns
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Gevo’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 179%, meaning it lit $178.90 of cash on fire for every $100 in revenue.
Final Judgment
Gevo has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 7.4× forward EV-to-EBITDA (or $1.56 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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