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Understanding Gevo’s New Risk Factors
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Understanding Gevo’s New Risk Factors

Renewable fuels company Gevo Inc. (GEVO) is focused on transforming renewable energy and carbon into energy-dense liquid hydrocarbons. These can be used for gasoline, jet fuel, and diesel fuel. The company makes use of low-carbon renewable resource-based carbohydrates as raw materials.

Gevo recently announced a deal where BP Canada will sell the energy produced from Gevo’s NW Iowa RNG subsidiary into California. The deal — announced on August 9 — should bring in $9 million to $16 million a year, starting in late 2022. The NW Iowa RNG project turns dairy manure into renewable natural gas.

Let’s take a look at Gevo’s most-recent earnings report, as well as what’s changed in its key risk factors that investors should be aware of. (See Gevo stock charts on TipRanks)

In Q2, Gevo’s revenue dropped to $0.4 million from $1 million a year ago, missing consensus by $161,500. This decrease in the top line was attributable to lower production volumes of hydrocarbon at the company’s South Hampton facility.

Gevo’s cost of goods sold, R&D expenses, and SG&A expenses, on the other hand, increased during this period, resulting in a net loss per share of $0.09.

On August 13, H.C. Wainwright analyst Amit Dayal reiterated a Buy rating on the stock, alongside a price target of $18, implying 243.5% upside potential. That’s after a price surge of 836% over the past 12 months.

Dayal commented on the results, “Investors should expect no significant near-term revenue generation as the company shifts its business model away from ethanol production.”

The analyst projects Gevo’s top line to expand from $5.5 million in 2020, to $268 million in 2031, implying an 11-year CAGR of 42.3%.

Risk Factors

According to the new TipRanks Risk Factors tool, Gevo’s main risk category is Finance & Corporate, accounting for 30% of the total 69 risks identified. Since June, the company has added one key risk factor.

Under Share Price and Shareholder Rights, the company highlights that it may not be able to issue sufficient additional shares for future capital raising or strategic transactions.

Gevo currently has 250 million authorized shares of common stock and has already issued 197.2 million shares. Gevo operates in a capital-intensive industry, and believes it does not have sufficient unissued shares for future issuance. To increase this limit, Gevo plans to seek stockholder approval, but a delay or a failure to obtain this approval may adversely impact the company’s business and financial condition.

Compared to a sector average Finance & Corporate risk factor of 38%, Gevo’s is at 30%.

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