In the renewable feuls space, there are few stocks that seem to garner as much attention as Gevo, Inc. (NASDAQ: GEVO). Over the past few sessions, the stock has been on center stage as various bits of news break. Although most of the news has been positive, there was an SEC filing this morning that brought on some pain. While investors are cringing today, those that get in today may be at the forefront of a highly appealing opportunity! The big question is, should you buy the dip?
GEVO SEC Filing Sends Stock Tumbling!
The source of the dramatic declines that we’re seeing out of Gevo today is a Securities and Exchange Commission (SEC) filing. The filing was a 424(b)(5) filing that acted as a supplement to a prospectus dated August 2, 2017. Essentially, the filing has to do with the company’s ability, at its discression, to offer up to $10,000,000 in shares. Any time new shares are offered, dilution is at the forefront of investor minds, and investors are seeing red, pushing GEVO further into it as we speak.
Why These Declines Could Be An Opportunity
The bottom line is that no news surrounding dilution is good news, but this news could prove to be an incredible opportunity. The truth of the matter is that over the past few trading sessions, we’ve seen some great news out of GEVO that suggests that strong revenue growth is on the horizons.
In one of the most catalystic events the company has seen in its history, GEVO announced on June 12, 2018, that the United States Environmental Protection Agency (EPA) had approved isobutanol at a 16% blend level in gasoline for on-road use in automobiles. Previously, isobutanol had only been approved in blends up to 12.5%. This is great news as isobutanol is Gevo’s flagship product. Higher percentage blends equate to stronger opportunities for revenue. Of course, management was excited too as you can see from the comment below:
Blends of isobutanol at a 16% level have previously been used for boats and off-road applications. We congratulate Butamax in getting this registration done. We all benefit. 16% blend levels allow more RINS per gallon, high octane, and many other benefits. At Gevo we have been developing the markets for isobutanol containing gasoline, in particular to meet the demand for the ethanol free segment of the gasoline market. A 16% blend option will give our customers and partners an option for an even better product for on-road use. -Patrick Gruber, Chief Executive Officer of Gevo
In other news, today, June 21, 2018, GEVO announced that it entered into a long term agreement surrounding the supply of renewable alcohol-to-jet (ATJ) fuel. The ATJ fuel will be provided to Avfuel Corporation, starting on July 1, 2018. The agreement marks a major milestone as Avfuel is one of the world’s leading suppliers of aviation fuel and services to just about every industry consumer group out there. In fact, Avfuel is responsible for servicing more than 3,000 locations around the world.
This news marks a first for GEVO as well. In fact, it is the first long-term commercial supply agreement that Gevo has closed surrounding its ATJ fuel product. From management statements, it’s clear that the CEOs of both parties involved in the contract are excited to be part of it:
We are pleased to have a customer and partner like Avfuel. Avfuel has tremendous reach with more than 650 Avfuel-branded locations and 3,000-plus fueling locations worldwide to a vast scope of customers. We appreciate its vision and leadership in working with us to bring a better and more sustainable fuel to the market place. Not only can we reduce greenhouse gas emissions, but we also can produce a higher quality product than petroleum-based jet fuel from a technical standpoint. The whole supply chain should benefit, as well as the end customer. This contract with Avfuel is an excellent first step and will serve as a catalyst for Gevo to build up the aggregate demand so we can proceed with the development of a larger scale ATJ facility. – Patrick Gruber, Gevos chief executive officer.
As a leader in the global supply of aviation fuel and services, we have a social responsibility to make sustainable alternative jet fuel a reality in the marketplace. Our agreement with Gevo is a notable component in our overall strategy to support our industrys commitment to reduce carbon emissions and enhance sustainability to mitigate its effect on climate change. -Craig Sincock, owner, president and CEO of Avfuel
The Opportunity In The Making
GEVO is having a rough day in the market today, there’s no doubt about that. At 11:44, the stock was trading at $9.10 per share after 27.41% of its value had been trimmed off of the top. Nonetheless, these declines could prove to be a compelling opportunity.
While investors are concerned with dilution, the funding the company receives will help to fuel its growth, and there’s no better time than now for that to happen. With the recent news of the EPA approving 16% blends, the company now has the ability to generate more revenue with each gallon of blended gasoline sold. This, in conjunction with the company’s agreement with Avfuel is a strong indication that revenue is likely to see some pretty hefty growth ahead.
At the same time, developed nations around the world continue to work to reduce their carbon footprint. Renewable, clean fuels are one of the best places to start making this happen. With a proven product, a global shift toward the product and products like it, and shifting regulatory conditions, GEVO has the potential to see incredible growth ahead.