Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
this month biodiesel producer Renewable
Energy Group, Inc. (REGI:Nasdaq)
reported a tidy profit of $22.3 million on record $1.0 billion in total sales.Reported net income was $43.5 million,
including accounting treatments for corporate recapitalization undertaken in
the year.Results from 2012 were
noteworthy on a couple of counts.
was the first time in the company’s ten-history (including years of operation
among predecessor firms) that sales exceeded $1.0 billion.REGI produced 188 million gallons of
biodiesel from a variety of feedstock, including non-edible corn oil, used
cooking oil, animal fats and soybeans.Feedstock flexibility has helped drive down direct costs.Gross margin in 2012 skyrocketed to 14.8%
compared to 7.4% in 2012 and 4.3% in 2010.
Renewable Energy Group Houston Plant
company’s profits also exceeded government subsidies for biodiesel production,
providing a strong endorsement of REGI’s low-cost business model.Even without the $8.3 million in total government
biodiesel subsidies received in 2012, REGI would have reported a profit.Granted, the company’s predecessor firms on a
combined basis achieved this “profit” status twice before in 2005 and 2007.
my view, the two achievements demonstrate that with scale, renewable fuel
producers can turn a profit and deliver value to shareholders.REGI is dependent upon a supplier network for
feedstock.However, like the squeaky wheel,
a large buyer gets attention and probably the best the market has to
offer.Management has made a point of
how well-tuned their feedstock buyers are to drum beat of daily supply and
pricing.That certainly helps get the
low-priced feedstock REGI needs.
four analysts with published estimates for REGI seem to think the company can
maintain production and sales in 2013, but real top-line growth is not expected
until next year.The consensus estimate
for 2013 is $1.43 on $1.1 billion in total sales.That means REGI shares are trading at 5.2
times the current year earnings estimate.That seems like a bargain to me for a company with a ten-year production
history, growth prospects and profits.
has been building momentum in REGI shares since last fall and the stock has
nearly doubled.However, every month or
so, the stock takes a breather, providing value-oriented investors to nibble
away a few shares are interesting prices.A long-term price objective near $12 or $13 is not unreasonable.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies