What happened
A day after shares of Enviva (EVA 13.64%) lost more than half their value, investors are apparently taking a fresh look at the renewable energy company. Shares of Enviva traded up as much as 32% on Friday on hope that the company's issues will be short-lived.
So what
Enviva is one of the world's largest producers of industrial wood pellets that can be burned in place of fossil fuels. The company has a solid business and international customers. In recent years, it has become a popular investment due to its growth potential and its dividend.
But the investment thesis was dealt a major blow Thursday when Enviva reported higher losses than a year ago and said it was eliminating its dividend to preserve cash. Investors hit the sell button, sending shares of Enviva down as much as 65%.
Friday's rally does not appear to be based on any additional news but rather on an assessment by some that Thursday's sell-off was overdone. Enviva still has a stable backlog of future business, biomass still has an important role to play in the green energy revolution, and the added cash will help build Enviva's balance sheet.
And at the stock's low, a $100 million share-repurchase authorization announced Thursday represented about 20% of Enviva's market capitalization.
Now what
As with most things, the truth is likely somewhere in the middle. Enviva is not necessarily doomed just because the dividend is gone, but the investment thesis today is very different than it was only a few weeks ago when the company held its annual investor day.
The dividend was a cushion against the uncertainty and volatility that comes with emerging technologies like green energy. With it gone, management will have to execute its strategies well if Enviva is to reward investors.
There's still a case for buying Enviva, but anyone considering it today needs to be aware of the risks. Absent the dividend, Enviva, at best, should be a small part of a well-diversified portfolio.
