Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Solazyme (NASDAQ:TVIA) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Solazyme's story, and we'll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Solazyme's key statistics:

SZYM Total Return Price Chart

SZYM Total Return Price data by YCharts

Passing Criteria

3-Year* Change 

Grade

Revenue growth > 30%

13.8%

Fail

Improving profit margin

(458%)

Fail

Free cash flow growth > Net income growth

(364.8%) vs. (534.8%)

Pass

Improving EPS

(11.9%)

Fail

Stock growth (+ 15%) < EPS growth

(43.2%) vs. (11.9%)

Pass

Source: YCharts. * Period begins at end of Q1 2011.

SZYM Return on Equity (TTM) Chart

SZYM Return on Equity (TTM) data by YCharts

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(49.7%)

Fail

Declining debt to equity

854.3%

Fail

Source: YCharts. * Period begins at end of Q1 2011.

How we got here and where we're going
Solazyme has gone over about as well as an old chocolate bar floating in a public pool in its three years on the markets. Its two-of-seven score today was awarded entirely on technicalities -- the fact that free cash flow has sunk nearly 400% would surely be a failing effort for most other companies, and share dilution has helped Solazyme avoid a worse decline in its EPS by ensuring that larger losses are spread across far more shares. Despite this abysmal effort, a few investors remain quite bullish on the little synthetic-oil specialist. Will their hopes be rewarded over the long run, or will Solazyme's ongoing financial problems prove too much to overcome in the end? Let's dig deeper to find out.

While it's clear that Solazyme's business has been extraordinarily capital-intensive, investors cheered recent news that the company has finally brought a huge new plant in Brazil online. This 100,000-metric-ton facility blows away the company's previous production capacity and promises economies of scale that were previously unattainable, and since it's already fully operational, Solazyme ought to be able to ramp up production well beyond last year's total -- and at lower prices per unit, too. This plant, jointly owned by Solazyme and Bunge (NYSE:BG), had been long-delayed in starting up, but its capabilities are now quite well-known -- thanks in no small part to an excellent series of exploratory pieces by Fool biotechnology and cleantech specialist Maxx Chatsko (click here for part one and click here for part two).

Chatsko has emerged as the Fool's undisputed expert on Solazyme and its technology, and he's also put together a piece debunking some common arguments against Solazyme. While he's gone into great detail on Solazyme's technology, this article doesn't debunk the oft-repeated refrain that Solazyme's processes are simply too costly to be profitable -- and ultimately, investors do want to see profitability from their investments.

These opportunities seem to lie primarily in food products or lubricants, the latter of which might fulfill the promise of reducing American dependence on foreign oil without requiring Solazyme to become a major fuel producer, which has been an increasingly outmoded knock on the company, as it's been unable as yet to produce biofuel that's cost-competitive to current petroleum options.

However, Solazyme remains dependent on the costs of its inputs. Its largest input is sugarcane to fuel the biological processes of its tailored algaes, and Solazyme has been very lucky here: sugar prices have plunged since 2012. These prices may not stay low forever, though -- after dropping nearly by half from the start of 2012 to the end of last year, sugar futures have already spiked by 25% since the start of this year. Solazyme's higher-margin products could help it ameliorate these fluctuations, but a 25% increase in input costs puts the company's nearer-term profit projections in peril.

Putting the pieces together
Today, Solazyme has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Alex Planes has no position in any stocks mentioned. The Motley Fool owns shares of Solazyme. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.