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Here's Why Shares of Pacific Ethanol Skyrocketed 85% in September

By Scott Levine – Oct 8, 2020 at 3:39PM

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Investors don't think demand will dwindle for this company's high-quality alcohol anytime soon.

What happened

Soaring 69% in August, shares of Pacific Ethanol (ALTO -0.86%) stayed hot in September and climbed 85%, according to data from S&P Global Market Intelligence. With coronavirus cases continuing to rise, investors recognized that demand for sanitizers and disinfectants will continue to be strong -- as will Pacific Ethanol's high-quality alcohol. Additionally, a strong show of support from Wall Street for the company's stock provided investors with additional reasons to pick up shares.

So what

A leading producer of high-quality alcohol products, Pacific Ethanol gained attention from investors in September as coronavirus cases began to surge in many areas after having slowed down over the summer and as the U.S. death toll surpassed 200,000. As the number of infected people rose through the month, investors recognized the value of the company's decision to increase production capacity. In an investor presentation from Sept. 14, Pacific Ethanol announced that it was expanding annual production capacity from 85 million gallons at the end of the recently completed second quarter to 140 million gallons at the start of 2021.

A businessman stands on the nose of a rocket speeding upward.

Image source: Getty Images.

Further inspiration to pick up shares came in the form of a wave of bullish sentiment from Wall Street. Reiterating a buy rating, H.C. Wainwright raised its price target on the stock to $16 from $3, according to Recognizing the potential positive impact to the company's income statement, Amit Dayal, an analyst at H.C. Wainwright, commented that the increase in production capacity can "tak[e] it from an outlook burdened with expected losses to one of profitable growth."

Eric Stine, an analyst at Craig-Hallum, also espoused a bullish stance on the stock, raising his price target to $13 from $9 while maintaining a buy rating on the stock. But Stine sees the potential for an even greater upside, stating his belief that the possibility exists for the stock to cross the $20 per-share threshold.

Now what

While the COVID-19 pandemic is clearly providing a tailwind for Pacific Ethanol, the company has reported negative earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2018 and 2019. Therefore, the stock should only draw the attention of those with a high tolerance for risk. Meanwhile, growth stock-seeking investors have plenty of other compelling opportunities from which they can choose.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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