Things haven’t been going that well for Gevo, Inc. (GEVO) over the last year. There are a lot of factors contributing to this, but certainly a company committed to providing alternatives to petroleum-based fuels is going to take a hit when the price of oil plunges over 50%.
Prior to today, the stock was off just under 85% over the course of the last year, showing the continuations of steady declines that have taken the company from its peak in the aftermath of its IPO back in 2011 to yesterday’s close of $2.45 apiece.
Gevo Jumps on Clean-Burning Jet Fuel
Shares in Gevo gapped up $3.56 – a gain of more-than 45% – and kept gaining until an intraday high of $6.11 at around 11 AM. Shares pulled back from there but stayed over $5 a share throughout the day. Market reaction to news of the Alaska Air Group deal would seem to indicate that there was belief that the deal would provide Gevo with consistent and much-needed revenue.
Gevo’s fuel is produced using isobutanol derived by fermenting renewable feedstocks.
“If we’re at full scale, we’d have the lowest-cost, renewable-resource-based jet fuel around,” Gevo CEO Pat Gruber told Bloomberg in a telephone interview. “It’s just like standard-performance kerosene, but our stuff generally burns way cleaner than petrochemical-based jet fuel.”
Fuel derived from renewable sources like Gevo’s could have a benefit for airlines by protecting them from the volatile commodities market for oil futures. Operating on a fuel source with consistent and predictable prices could be advantageous in many ways.
"Developing a domestic, competitively priced, sustainable supply of biofuels is fundamental to the future of American aviation," said senior vice president of external relations for Alaska Airlines Joe Sprague. "The cost of fossil-based jet fuel is one of the largest expenses for airlines. This investment in Gevo's ATJ will help reduce our exposure to high fuel prices, minimize our carbon footprint and demonstrate growing demand for fuel alternatives."
If Oil Rebounds, Gevo is a Very Real Play
Gevo, ultimately, is likely a play that only makes sense if you believe that oil prices are ultimately going to rebound if/when the Saudis decide they’re done with whatever it is they’re doing at the moment. There are plenty of people out there who feel like that’s an eventuality – which certainly doesn’t make it so – but does mean that a future where airlines are scrambling to find alternatives for the jet fuel seems at least as likely as not.
Gevo has clearly not been a positive investment story up to this point. Its collapse over the last four years has been epic. However, the nature of stocks is that one has to keep a forward-looking approach to any and all investments. Regardless of where it started, Gevo’s potential growth in the future is the only consideration that should matter to a potential investor.
Until last year’s rapid decline in oil prices, the primary factor driving airlines profits (or lack thereof) was fuel costs. If Gevo can really supply a competitive solution to traditional petroleum-based jet fuel, that could make them an excellent alternative that would be appealing to any number of airlines. Only time will tell, but Gevo could still potentially provide at least some investors with real returns some day in the future.
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