Renewable Energy Group: Sustainable Chemistry at a Bargain

Well over five hundred year ago Native Americans noticed the favorable properties of a gooey, jelly-like substance building up at the edges of oil pits.  They scooped it up and applied it to dry and irritated skin.  In the 1800s Europeans latched onto both the oil and the petroleum jelly.  The move may have spared the incumbent oil source, sperm whales, from extinction.  Yet today the world is struggling to shed its addiction to crude oil, which has proven to be so foul and injurious it threatens the environment that supports humankind.  We cannot go back to the slaughter of sperm whales.  Fortunately, alternatives have been found, even for petroleum jelly.

In the early days clever industrialists adopted glycerin to make dynamite.  Over the decades we have found a number of more docile uses for glycerin.  It is now widely used in food, cosmetics and pharmaceutical applications.  Glycerin helps prevent ice crystals from forming in frozen foods.  It rounds out chemistries for heart medication, cough syrups and anesthetics.  A pinch of glycerin helps prevent toothpaste from hardening in the tube.  Soaps, lotions and makeup owe their soothing consistencies to glycerin additive.   The numerous applications for glycerin have built the global market to over $3 billion.  Fortune’s Business Insights Group has predicted the sector can grow by 5.2% annual for the next six years. 

Renewable Energy Group (REGI:  Nasdaq) is not counted among the world’s largest producers of glycerin.  However, it is the largest producer of renewable glycerin in the U.S.  Glycerin is a by-product of REGI’s biodiesel production made from vegetable oil and animal fats (no wanton slaughter required).  REGI has the capacity to produce more than 400 million pounds of glycerin annually.

In the twelve months ending September 2020, the company earned $596.4 million in net income or $12.92 per share on $2.6 billion in total sales.  During the same period the company generated $584.8 million in operating cash flows, representing a conversion of 22% of sales to cash.    

REGI’s success has not gone unnoticed by traders.  The shares have tripled in value over the last year alone.  Nonetheless, the shares remain favorably priced at 8.5 times trailing earnings.  Highly sustainable and environmentally sound products at a bargain price  -  REGI is well worth consideration.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.