What happened
Danimer Scientific (DNMR -1.65%) investors had a great week as shares soared 28% through early Friday trading. That's as compared to a 2.9% rally in the wider market, according to data provided by S&P Global Market Intelligence. The volatile bioplastics specialist is now up over 80% so far in 2023.
This week's rally was powered by a warm Wall Street reception to management's latest earnings update.
So what
Executives said on Tuesday that Q4 sales declined to $15.3 million from $17.7 million a year ago. The company continues to lose money as it ramps up its scale, but its adjusted EBITDA losses improved to $8.6 million from $10.2 million in the prior-year period.
Investors looked past those weak Q4 results toward a potentially bright future for Danimer's biodegradable plastic resin products. Management projected a return to sales growth and improving margins in 2023, in part because of rising demand for packaging materials that are more environmentally friendly. Danimer has a good position in this emerging niche, and by scaling up its production rate, the company can lower costs and boost revenue.
Now what
Danimer stock remains a highly risky investment due to factors like the biotech company's tiny sales base, consistent net losses, and unproven earnings model. Yet it could enjoy rapid growth if its products are able to capture even a small portion of the massive market for commercial plastics.
That optimism was the dominant feeling for investors in a week that was positive on the stock market. Danimer's stock could easily fall again if that sentiment swings negative, especially since it will likely be several quarters before more clarity emerges about the company's path toward profitability. Yet over the last few days, investors chose to focus on the prospects for accelerating sales growth.
