What happened

Shares of Green Plains (NASDAQ:GPRE) rose as much as 37.8% today after the stock received an upgrade from a Wall Street analyst. Jeffries analyst Laurence Alexander raised his price target from $7 per share to $16 per share, arguing that the troubled ethanol industry is poised for a recovery as demand for transportation fuels picks up amid reopening efforts. 

Investors wasted no time taking the bullish argument into account. After touching lows of $4 per share in March, shares of the ethanol producer were trading hands near $9 apiece as of 12:40 p.m. EDT, marking a gain of 24.6% for the small-cap stock.

Several white paper airplanes being led higher by a red paper airplane.

Image source: Getty Images.

So what

The coronavirus pandemic and the public health policies implemented to contain it have caused demand for motor gasoline to collapse. Data compiled by the U.S. Energy Information Administration (EIA) show gasoline consumption in late April was 37% lower than the five-year average for that time of year. Production of ethanol, which is primarily consumed when blended in gasoline, collapsed 45% as manufacturers were forced to respond to market conditions.  

While ethanol production and consumption should recover along with demand for transportation fuels, investors shouldn't get too carried away. Green Plains reported an operating loss of $54 million in the first quarter of 2020, which was worse than in the year-ago period. Put another way, ethanol markets faced significant challenges before the coronavirus pandemic struck. 

Now what

The historic decline in demand for transportation fuels is likely to be short-lived. That said, due to the uncertain nature of the eagerly awaited economic recovery, investors should assume gasoline consumption will take a very long time to completely recover to prior levels. Shares of Green Plains might bounce off March lows as a result of increasing gasoline demand in the coming months, but the "recovery" won't come close to solving all of the company's operating challenges that existed before the global health crisis struck.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.