What Fueled Solazyme's Wild Moves in 2012?

The first half of 2012 is in the rearview mirror, and investors are gearing up for what looks to be an action-packed ending. There are bound to be some big winners -- and more than a few duds -- no matter what happens in the United States and abroad.

Will your favorite stock have its victory lap as we hit the home stretch, or will it get lapped? First-half performances can hold some clues, so let's look to the recent past to find out whether Solazyme (Nasdaq: SZYM  ) deserves a place in your portfolio going forward.

First-half recap
Solazyme has had quite the ride in 2012. It started the year on a high note, but that didn't last. Fortunately for shareholders, the stock clawed its way back to positive territory, and it holds a slim gain for the first half of the year:

SZYM Total Return Price Chart

SZYM Total Return Price data by YCharts.

Here are a few key metric regarding its recent performance:

Market Cap $775.3 million
TTM Revenue $45 million
TTM Net Loss ($63 million)
TTM Free Cash Flow ($58 million)
MRQ Revenue $14 million
MRQ Net Loss ($17 million)
MRQ Free Cash Flow ($23 million)
MRQ Revenue/Net Income Year-Over-Year Change 75%/(142.9%)
Motley Fool CAPS Rating (out of 5) ***

Source: Morningstar. TTM = trailing-12-month. MRQ = most recent quarterly.

What the numbers don't tell you
Solazyme started the year on an upward trajectory after finalizing a year-end biofuel supply contract with the U.S. Navy. The cost of that fuel, many times more per gallon than normal petroleum-based fuels, did not go unnoticed, but the contract still represented a turning point for Solazyme. The small biofuel producer has also partnered with Chevron (NYSE: CVX  ) and supplied fuel for a test airline flight.

However, like many other biofuel producers, notably Amyris  (Nasdaq: AMRS  ) , Solazyme has found difficulty in scaling up its biofuel production operations. KiOR (Nasdaq: KIOR  ) completed its first plant in Columbus, Miss., but the plant has not yet produced anything commercial. That's led Solazyme toward other applications for its microalgae production process, particularly renewable oils for nutritional and cosmetic use. The company's stock soared after announcing plans to build a Brazilian plant for such oils. That's been Solazyme's peak so far this year. What happened since?

Not much, really. As an early stage company, Solazyme may be years away from meeting its potential. The only notable performer in the biofuels segment thus far has been Rentech (NYSE: RTK  ) , and that company has substantial fertilizer interests keeping it profitable. In the meantime, Solazyme's been bleeding cash as it tries to scale up, and both revenue and net income took a turn for the worse in its most recent quarter.

The Fool's analysts have taken both bullish and bearish stances on Solazyme this year. Fellow Fool Neha Chamaria reiterated the "diversified renewables" argument that Fool contributor Brian Stoffel has presented since last year. Fool analysts John Reeves and David Meier also bought Solazyme for their real-money portfolio last month on the basis of these arguments. Fool analyst Alyce Lomax agrees, and was the first to give Solazyme a place in her real-money portfolio, but she also recognizes the potential political pitfalls of owning an alternative energy stock in the age of Solyndra scandals.

On the other hand, I and my fellow Fool Travis Hoium have both pointed out that biofuels have a long, troubled history with no evidence of real success. He notes that scale in biofuels will be exceedingly difficult to achieve, and that consumer products might save these companies from themselves. Other analysts have also taken bearish stances, and one recent downgrade sent the stock plummeting.

Going forward, investors should look for successful Solazyme product rollouts on store shelves as well as new biofuel developments. Much of this stock's movement may seem arbitrary for the rest of 2012, as there isn't much yet to latch onto. Both positive and negative news (as well as speculation) can easily cause wild moves in Solazyme's stock price.

Solazyme's future may depend on the upcoming elections. There are many other companies that could have huge swings after all the votes are cast, and The Motley Fool's got a list of several in the right position to profit. Find out more in our latest free report: "The Stocks That Could Skyrocket After the 2012 Election." Don't wait until November for this information -- claim your free copy of this important report now.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Solazyme. Motley Fool newsletter services have recommended buying shares of Chevron. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 11, 2012, at 3:32 PM, lanceim59 wrote:

    Alex, you and your fellow fool Travis Hoium apparently don't understand the technology that makes Solazyme different from other biofuel companies.

  • Report this Comment On July 11, 2012, at 4:17 PM, Cake123xyz wrote:

    Alex, you're turning the concept of a "fool" into a more literal understanding of the term.

    There are so many things wrong with whats being asserted here its just downright sad...

    1) SZYM partnered w/ Chevron, but not for that test flight. That was with United Continental & technically Honeywell.

    2) The company's biofuels are the long-term goal of the company, not its present-day emphasis. Stop giving it so much attention.

    3) It's disappointing you emphasize the cost of the fuel CONTRACT w/o actually stating the cost of the fuel itself on a fit-for-purpose commercial scale facility.... which btw is not many times the cost of petroleum.

    4) You also leave out that the fuel SZYM plans to make isn't actually going to be competing on a commodity trade level. They'll be focusing on blends & additives because they can make higher quality products than petty jet fuel.

    5) Solazymes prospects have ABSOLUTELY NOTHING to do with the upcoming elections or who wins it given that its not relying on government handouts to succeed.

    6) Your subjective thoughts about nothing really happening fail to give proper thoughts on the new oil profile that eliminates polyunsaturated fatty acids.... a research breakthrough that is unable to be obtained through the processes of agricutural giants like Monsanto or Syngenta.

    7) Your emphasis on fuel seems to orbit around the idea that this company's main purpose is to make fuel.... something that it has never stated itself. The company makes triglyceride oils, a product in which one application is to be used to be refined into biofuel.

    Start researching or stop writing. It's getting annoying.

  • Report this Comment On July 11, 2012, at 6:08 PM, fph100 wrote:

    I'm really tired of reading ads for Motley that purport to be an analysis of a recommended stock. Lately when I see an article written by the Fool I skip it. I don't know why I read this one (maybe it's because I own a considerable amount of Solazyme) but I wasted my time.

  • Report this Comment On July 11, 2012, at 7:23 PM, TMFBiggles wrote:

    Cake123xyz -

    Responses to your numbered responses:

    1. The test flight is a separate event. Sorry if that wasn't conveyed clearly. I wasn't trying to imply that Solazyme partnered with Chevron for the test flight.

    2. Solazyme's homepage says this: "Solazyme is working to meet the world's growing demand for oil supply." The headline graphic says "for fuel" first, before anything else. Why shouldn't we, as writers, cover this part of the company's business if they make it the centerpiece of their public image?

    3. I'd be happy to be proven wrong, but the contract (which is explained in the link "many times more per gallon") is for an amount of biofuels, and is calculated as such. The cost per gallon was $26.67.

    4. That's one argument that I'll give you. It's possible Solazyme could gain long-term by supplying additives instead of actual fuel, but that's not what's promoted by Solazyme's own PR.

    5. The value of the Navy's contract is about a quarter of Solazyme's total revenue over the trailing 12 months. Granted, they did not get the entire contract, but it's a bit optimistic to say that political shifts won't have an impact on Solazyme's future. Either an expansion or a shutdown of its Navy supply arrangement would have a substantial impact on the company, and either option is possible.

    Hope that clears some of my points up somewhat.

    - Alex

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