Gevo stock forecast: trading at fair value but still risky
13:32, 13 May 2021
After an outstanding performance last year on the back of increased interest in renewable sources of energy, Gevo shares are still holding on to the gains they saw during the first couple of months of 2021. The latest price action shows signs of a potential reversal, however.
At the beginning of the year, a private placement with an institutional investor priced the stock at $8 per share, which prompted a strong rally that saw the price climbing to an all-time high of $15.57 in early February 2021 – almost double the valuation obtained by Gevo for the share offering.
But with the stock now trading at roughly a third of its February peak, investors might be wondering if this could be an opportune time to grab some shares. After all, Gevo is a promising company that plans to revolutionise the combustibles market through renewable fuels.
Join me in the following Gevo stock forecast as I take a closer look at this company’s fundamentals and current technical setup.
Gevo stock news
Gevo is planning to report its earnings for the first quarter of 2021 on 13 May and analysts are expecting to see revenues landing at $320,000, which results in a significant retreat from the $3.825m the company reported a year ago.
The reason why sales are expected to go down that much is that one of the company’s primary production facilities in Luverne, Minnesota, has been shut down since March 2020 as a result of the COVID-related crisis and could remain idle until the second half of 2021at least .
Meanwhile, the company announced in March 2021 that it now plans to shift its production method to a new concept it calls Net-Zero Projects. The first of these facilities is expected to be built in Lake Preston, South Dakota, with an estimated capital expenditure of around $650m for this project.
Since the announcement, the stock has gone down 33% from $8.5 per share to $5.84 per share this last Friday. Apparently, market participants seem sceptical about the firm’s ability to pull this off, while the modification of its production method will have dramatic short-term effects on the business’s top line for the foreseeable future.
Meanwhile, the company has been conducting a series of at-the-market share offerings that have continuously diluted shareholders’ ownership in the past five months at least, with a total of $465.9 million raised via these direct stock sales as of January this year.
As a result, in a single year, the number of common shares outstanding for Gevo jumped from 12.2 million in 2019 to 56.88 million by December 2020.
The degree to which shareholders have been diluted during this past year, along with the uncertainty relating to the firm’s ability to change its production method, is particularly concerning.
For investors, it would be important to keep an eye on the management’s comments with regard to the future of the firm during this upcoming earnings report, as they could provide further insights to what shareholders can expect from the firm for the coming months.
What is your sentiment on GEVO?
Gevo stock forecast 2021, 2025, 2030
Last week’s price action for Gevo pushed the stock price near an important support area at $5.5, as shown in the chart above.
This would be the third time in only two months that Gevo tags this particular threshold and the more it touches it, the more likely it is that it could break below it. Meanwhile, momentum indicators, such as the relative strength index (RSI) and the moving average convergence divergence (MACD), are all flashing warning signals, because the stock has been hovering near oversold levels for quite a while now.
Even though that could lead to a short-term technical rebound, continuous low momentum readings often indicate that the trend has reversed, and the longer they last, the deeper the downtrend could go.
At the moment, the key level to watch for Gevo is $5.5. If the stock breaks below that level, chances are that it could land near the $4 area next and then, if the downward trend continues, that could be very bad news for the stock.
In my view, the earnings report could either accelerate the current downtrend or it could prompt a reversal if the management instills some optimism among shareholders. However, if the management fails to do this, a break below $5.5 seems imminent.
Meanwhile, according to Gevo’s Investor Presentation released in February, the company had a total of $530.6m in cash, which is around 70% of what it needs to complete its Net-Zero 1 project.
Moreover, according to this presentation, the company’s intellectual property – comprising 595 patents – was valued at around $412m by a firm called Peak Value IP.
Combining those two figures, we get a total of $942.6m in tangible value for Gevo. Meanwhile, the market capitalisation of the company at the moment is $1.16bn.
Based on that assessment, one could argue that Gevo is currently trading near its intrinsic or fair value, even though the company is generating almost no revenue, while losing money every single quarter.
If that is the case, and the market believes it as well, the stock could make a triple-bottom at the $5.5 level to then bounce toward the $7.5 area if the company’s outlook is promising enough to justify a premium above its tangible value.
Gevo stock forecast: controversial views
The analysts share different views on Gevo stock prediction for 2021–2022. According to TipRanks’ latest Gevo stock forecast, based on two analysts offering a year-long price target, the average price target for Gevo is $17.00, which represents a 203.03% increase from the last price of $5.61.
The highest analysts’ price target for the next 12 months is $18.00, while the lowest expected price is $16.00. The analysts rank the stock as a buy.
Another analytical source, WalletInvestor, seems to have doubts whether Gevo has good investment potential. It gives it a $0.119 median price target for the next 12 months, considering GEVO a “bad” long-term investment. According to its Gevo price forecast for 2026, the cryptocurrency’s price will trade at $1.865 in a five-year period.
FAQs
Is Gevo a good investment?
Gevo’s revenue-generation capacity has been decimated by the closure of one of its most important production facilities. As a result, the firm might continue to lose money for a long period, while it remains unclear whether it will be able to complete its Net-Zero Project successfully to revamp its production capabilities.
In this regard, Gevo is a high-risk investment and, even though the stock appears to be trading near its tangible value, if Gevo spends that cash on unproductive assets, that tangible value would progressively deteriorate as a result.
In that context, this stock cannot be considered a good investment as the future of the business remains highly uncertain.
Gevo stock: buy, sell or hold?
The two analysts that are currently covering Gevo are both bullish on the stock, with the consensus 12-month Gevo stock prediction currently sitting at $17 per share. That results in an upside potential of 191% if that target is hit.
These two analysts are Amit Dayal from HC Wainwright & Co and Poe Fratt from Noble Capital Markets. It is important to note that Noble was commissioned by Gevo to cover the stock, which means that a conflict of interest exists in that particular assessment.
Will Gevo share price go up?
Based on a technical analysis of the stock, if the price bounces off the $5.5 level in the following days, chances are that Gevo could reverse its current downtrend on the back of a triple bottom formation. If that happens, a first target for the stock could be set at $7.5 per share.
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