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Why Gevo Stock Just Popped 10%

By Rich Smith - Dec 31, 2020 at 11:20AM

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Gevo stock died yesterday. Today it got better.

What happened

Shares of renewable fuels company Gevo ( GEVO 0.58% ) crashed Wednesday after the company made an 8-K filing with the Securities and Exchange Commission, announcing plans to issue and sell as much as $150 million worth of new common stock "at-the-market" price. Today, however, Gevo stock suddenly rebounded 10.5% through 10:20 a.m. EST.

And the reason it did that was contained in the same Wednesday announcement. 

Origami dollar folded into an arrow pointing up

Image source: Getty Images.

So what

More precisely, the reason was contained in a Form 424B5 prospectus describing the stock offering, which was filed simultaneously with the 8-K. The prospectus states:  

"On December 23, 2020 and December 29, 2020, the holders of our 12% convertible senior secured notes due 2020/2021 (the "2020/21 Notes") converted $12.7 million in aggregate outstanding principal amount of 2020/21 Notes (including the applicable make-whole payment) into an aggregate of 5,672,654 shares of common stock pursuant to the terms of the indenture governing the 2020/21 Notes, which represents the entire outstanding principal amount of the 2020/21 Notes. There will be no principal outstanding on the 2020/21 Notes upon completion of the conversions, and all obligations under the 2020/21 Notes will be fully paid and terminated as of December 31, 2020."

Translation: When I said yesterday that Gevo "has $66.6 million more cash than debt on its balance sheet," that wasn't quite correct. Thanks to its having converted debt into stock in the past week, Gevo now has no debt (reports TheFly.com). And that means that its balance sheet is loaded with $80.6 million in cash and equivalents with no offsetting debt whatsoever.

Now what

For Gevo and its shareholders, this is good news (and today it elicited a price target hike to $5 a share for Gevo stock, from Noble Capital). True, converting the debt required the issuance of a new slug of stock, and so Gevo's shares-outstanding count now presumably stands a bit higher than previously reported -- probably in the neighborhood of 125.3 million shares (before issuance of any new shares under the prospectus).

But also true, Gevo's balance sheet is looking very healthy indeed today -- also before issuance of any new shares under the prospectus, and before Gevo gets any new cash from selling those shares.

Granted, big picture, nothing has really changed here, and the theme remains the same: Gevo is trading shares (and shareholder dilution) for cash. But for a young company with little revenue and no profit at all, cash is what Gevo needs, to buy time to build itself a viable business. This week's developments ensure that Gevo should have access to all the cash it needs for years.

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.

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Gevo, Inc. Stock Quote
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