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Since their March peak of $15, Solazyme (NASDAQ: SZYM  ) shares are off more than 25% from a new share offering and a broad sell-off in tech and growth stocks. But with the catalysts for Solazyme in 2014, this sell-off looks like an excellent buying opportunity for long-term investors.

Share offering
Kicking off Solazyme's big drop was the announcement that the company would offer 5 million new shares and $130 million of convertible notes. The market took a while to digest the news, seeing shares off only a few percent initially but taking a double-digit percentage loss by the end of trading.

The offering will result in an additional 5 million common shares and the potential for about 10 million more if the convertible notes are converted to common shares. In total, this means around 15 million additional common shares. With about 75 million shares outstanding, this offering could result in the share count increasing by 20%.

Depending on whether the overallotments are exercised, Solazyme expects to raise somewhere between $176 million and $203 million. While shareholders never like dilution, this additional cash should help Solazyme in its expansion. With the company planning major capacity growth over the next few years as it ramps up production, having this extra cash around provides more security for Solazyme going forward.

Tech and growth panic
Since March, there has been a broader market movement against technology and growth stocks. Some have attributed this to overvaluation, a near-term correction, or big money taking a more cautious stance on markets and moving toward less risky investments. No matter why tech and growth stocks are lower, the Nasdaq is off over 5% from its highs, and higher growth plays have suffered the most.

Solazyme has been an easy target for the sell-off since the company is both losing money and has exposure to an industry where a major player is having financial difficulties. On the financials front, Solazyme is losing money because it's investing heavily in building facilities to ramp up production. Doing so is necessary to the company's plans to scale its technology.

Although Solazyme is targeting specialty chemicals rather than biofuels right now, the market can't help but compare Solazyme to biofuel companies. Surviving in the biofuel industry has been difficult with many high profile names trading well below their initial offering prices as losses continue for many biofuel producers. Since there are few other companies to compare Solazyme to, the comparison to biofuel companies is most often used and it lumps Solazyme into an industry Wall Street is more skeptical of.

2014 catalysts
This year marks the beginning of Solazyme's production-scaling plan. Shares were driven higher earlier this year when the company announced production of its algae oils at its Clinton, Iowa, facility. As the year progresses, Solazyme expects to increase production levels at that facility.

But the company is also looking toward Brazil for another production facility. Solazyme has been working on its Moema, Brazil, facility for years in both logistics and financing. This year, Solazyme nears completion of and may start production at the Moema facility. With a 100,000 MT capacity, the facility would provide a major boost to Solazyme's production.

Shares on sale
A share offering and a sell-off in tech and growth stocks have hit Solazyme shares hard since mid-March, making shares cheaper for investors wanting to build or increase their position. Solazyme's growth plans remain intact and the company has already demonstrated the beginning of production at its Iowa facility.

Through 2014, investors should look for a ramp-up in production and for the markets to realize the difference between Solazyme's tailored oils and unstable biofuel companies. I will continue to hold my shares of Solazyme and may add more if the price goes lower. Investors looking for a unique growth company coming off a rough month of share-price performance should have a look at Solazyme.

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Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On April 09, 2014, at 8:38 PM, Jahuel wrote:

    Thank you for this excellent and accurate update on Solazyme.

    How many times have you read that they're a "Biofuel Company" in the last year? I lost count, but it still astounds me every time.

  • Report this Comment On April 10, 2014, at 6:17 PM, lurk wrote:

    Thanks for your insight into SZYM. What is the name of the major player mentioned as having financial difficulties in the industry szym has exposure to?

  • Report this Comment On April 10, 2014, at 7:58 PM, ecrtr wrote:

    Why does this stock need 5 million restricted shares sold at $.001 when insiders have been net sellers of the stock for each of the last 12 months according to S&P?

  • Report this Comment On April 12, 2014, at 3:49 PM, ecrtr wrote:

    I looked further into the basis for my prior claim and found that the restricted stock would be sold at greater than $0.001. That was my earlier impression. Sorry.

  • Report this Comment On April 14, 2014, at 10:09 AM, techpatriot wrote:

    SZYM is indeed on sale. The capital raise was to ensure money for growth, and they got it done just under the wire IMHO. I believe it is going to be harder to raise money the rest of the year.

    Also, SZYM is one of the few companies out their with truly market disruptive technologies (yes, not just "one" market).

    I look forward to seeing what they can do in 5 and 10 years time.

  • Report this Comment On April 15, 2014, at 10:12 PM, TMFBlacknGold wrote:


    "In total, this means around 15 million additional common shares. With about 75 million shares outstanding, this offering could result in the share count increasing by 20%."

    The 75 million share figure includes the 5.75 million common shares from the latest financing. The debt notes are not due until 2019.

    "Depending on whether the overallotments are exercised, Solazyme expects to raise somewhere between $176 million and $203 million."

    Solazyme closed the offering on April 1st (a week before this was published) and raised a total of $212.8 million in gross proceeds.

    "This year, Solazyme nears completion of and may start production at the Moema facility."

    The company expects to bring the facility online and begin ramp-up activities this month.


  • Report this Comment On April 16, 2014, at 1:33 PM, pataylo wrote:

    Short interest in SZYM increased to 12.76m shares (24% of outstanding shares) at the end of March. I'm confused by the short sellers. Are they betting that Solazyme won't be able to achieve industrial production scale? I'm long SZYM myself, because I see great prospects for their products (not so much fuel oils, but the many other products), creative forays into new markets, solid management, and little competition. I'll hold long term and hope Solazyme isn't acquired by a major chemical or oil producer.

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Alexander MacLennan

Alexander MacLennan is a Fool contributor covering Industrials, Airlines, and Financial companies. He is always ready for a good growth or turnaround story and tries to find them before the market does.

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9/4/2015 3:59 PM
SZYM $2.61 Up +0.15 +6.10%
Solazyme CAPS Rating: ***