Why Shares of Renewable Energy Group Inc Plunged Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Renewable Energy Group Inc (NASDAQ: REGI  ) fell as much as 12.6% today after the company reported preliminary earnings.

So what: Management said that Renewable Energy Group's loss will be $1.5 million-$3.5 million, and adjusted EBITDA will be $1 million-$3 million. Management previously expected adjusted EBITDA of $5 million-$15 million, and analysts were looking for earnings of $0.12 per share, which won't be hit, either. 

Now what: Gallons sold isn't going to be as high as management expected, and feedstock costs rose more than expected. Those two factors squeezed margins and resulted in a loss last quarter. I just don't think this is a business investors should be in long term because it's highly dependent on tax credits, and profits will be limited because feedstock prices will rise if demand increases very much. It's just not a business model that will last as other renewable energy sources cut costs.

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