The Russell 3000 Index tracks the performance of approximately 3,000 of the largest companies in the U.S., as measured by market capitalization As of May 31, the index had 3,057 holdings. It is a combination of the Russell 1000 and Russell 2000 indexes.
Anytime a stock is added to a market index such as the Russell 3000, the mutual funds and ETFs that track the index must buy shares of that stock.
In early afternoon trading today, Gevo stock is changing hands for just below $8.
I view the company’s addition to the Russell 3000 as an endorsement of its plans to convert renewable energy into energy-dense liquid hydrocarbons using its patented technology.
The only other time I’ve written about Gevo was in March when I called it the most interesting stock investors have never heard about. I finished my article by saying that aggressive investors looking for a speculative clean energy play should consider buying the shares for prices between $5 and $10.
At the time, GEVO stock was trading around $8.50; it’s gone sideways in the three months since then. Over those three months, the company has made three announcements other than the one about being added to the Russell 3000.
Let’s consider the impact of each announcement on GEVO stock.
Gevo’s Q1 Results
The company reported its first-quarter results on May 13. GEVO stock is up 66% since the company unveiled its earnings. While the company had little to show in the way of sales and earnings — it had $93,000 of revenue and an operating loss of $9.88 million — it noted that stock sales during the quarter had bolstered its balance sheet.
In January, the company sold 24.4 million shares, raising $135.8 million in net proceeds through its at-the-market offering. Also in January, Gevo sold 43.7 million shares in a direct offering for $8 per share. That raised a net total of $321.9 million for the company.
Gevo ended Q1 with $525.3 million of cash and debt of $1.23 million on its balance sheet. Consequently, its net cash was $524.1 million or 31% of its market capitalization. Put another way, it finished March with $2.65 per share of cash.
That’s good because its future projects will cost a significant amount of money to get up and running.
Gevo Broke Ground on Its Iowa RNG Project
Gevo announced in late April that it had officially broken ground on its renewable natural gas (RNG) project in Northwest Iowa. Once completed and operational in early 2022, the project is expected to generate 335,000 MMBtu (one million British Thermal Units) of RNG that will generate approximately $9-$16 million of annual revenue.
Equally important, the process involves collecting animal manure, putting it through an anaerobic digester, removing methane from the processed manure, and then delivering the remaining solids to farmers to use as fertilizer.
“This will allow the farmers to reduce their raw manure application, which will improve odor, water quality and nutrient management practices,” stated Gevo CEO Dr. Patrick Gruber in the company’s April 30 announcement.
That’s what I call a win/win deal.
Gevo’s Joint Development Agreement Makes Progress
On May 3, Gevo and its partner, Total Cray Valley, a global supplier of specialty chemicals and additives, announced the completion of Phase 1 of their Joint Value Agreement (JDA) that converts low-value fusel oils — a byproduct of ethanol production — into higher-value renewable chemicals.
In this case, Cray Valley will convert the fusel oils into isoamylene, which it will use to manufacture resins.
“For every pound of biobased isoamylene made and used in durable products like resins, it is essentially the equivalent of sequestering 2.5 pounds of biogenic CO 2 from the atmosphere, compared to that carbon being combusted,” stated Dr. Paul Bloom, Gevo’s Chief Technology and Innovation Officer.
If Gevo successfully commercializes this technology, the two companies would be providing the U.S. market and the world with their first supply of renewable isoamylene.
The Bottom Line on GEVO Stock
For speculative investors, the news that Gevo will be added to the Russell 3000 is merely icing on the cake.
While much has to go right for Gevo in 2021 and 2022 for its share price to move into the teens or higher, there’s no question that it’s got a role to play in the greening of America and the world.
If you like the company as I do, I suggest that you buy some of its shares now and see what happens.
But I would only buy GEVO stock if you can afford to lose 100% of your investment. This name isn’t a good retirement vehicle.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
The post Gevo’s Addition to the Russell 3000 Should Boost GEVO Stock appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.