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Why Solazyme Inc Slipped This Morning

By Brian D. Pacampara, CFA - Mar 4, 2014 at 9:30AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Solazyme Inc ( TVIA ) slipped about 2% this morning after Goldman Sachs downgraded the renewable oil company from Buy to Neutral.

So what: Along with the downgrade, analyst Brian Lee reiterated his price target of $13.50, representing about 10% worth of upside to yesterday's close. While momentum traders might be attracted to the stock's strength in recent months, Lee thinks that much of Solazyme's prospects are already baked into the valuation.

Now what: According to Goldman, Solazyme's risk/reward trade-off is pretty balanced at this point. "We believe SZYM has executed well vs. peers, with its first two commercial- scale facilities now within months of both being online and delivering volume," noted Lee. "That said, we think this catalyst is already reflected, given the stock's c.30% move since the end of Jan., and we are more guarded on the near-term path for catalysts given financial performance is likely to remain muted." Of course, when you consider Solazyme's rock-solid balance sheet and still-compelling long-term prospects, I'd take Goldman's downgrade with a grain of salt.  

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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