Coupled with macroeconomic uncertainties, supply chain issues could hamper the growth of the chemical industry. Given this backdrop, let us explore some fundamentally weak chemical stocks, Danimer Scientific, Inc. (DNMR) and Gevo, Inc. (GEVO), that could be avoided for reasons mentioned in the article.
Even though the chemical industry has improved considerably since the pandemic, owing to its soaring demand, the toxic mix of economic headwinds has taken a toll on the industry. To begin with, supply chain constraints and freight transportation issues have plagued the industry to a great extent.
According to the American Chemistry Council (ACC), 93% of companies believe the supply chain and freight transportation disruptions have affected their U.S. chemicals manufacturing business. In a press release, ACC economist Emily Sanchez said announcing the survey’s findings, “There are signs that conditions have improved, but the transportation problems plaguing our members are far from resolved.”
In addition, as per Manufacturing ISM® Report on Business, the chemical industry activity continued to contract through March. New orders and new exports were down, and production and employment declined in March. Moreover, with the International Monetary Fund (IMF) forecasting a global economic slowdown, the chemical industry could face a decline in demand.
Against this backdrop, fundamentally weak and beaten-down chemical stocks DNMR and GEVO could be best avoided now.
Danimer Scientific, Inc. (DNMR)
DNMR is a performance polymer company that develops, produces, and provides bioplastic replacements for traditional petroleum-based plastics. The company offers its products for biopolymers and markets its products to consumer packaging brand owners, converters, and manufacturers in the plastics industry.
DNMR’s trailing-12-month ROTC of negative 10.48% compares to the 6.89% industry average. Likewise, its trailing-12-month EBIT and EBITDA margin of negative 232.89% and 194.46% compare to the industry averages of 12.60% and 19.03%, respectively.
DNMR’s forward EV/Sales and Price/Sales 7.18x and 4.52x are 378.3% and 295.3% higher than the 1.50x and 1.14x industry averages, respectively.
In the fiscal fourth quarter that ended December 31, DNMR’s total revenue declined 13.6% year-over-year to $15.32 million. Its loss from operations for the same quarter stood at $29.72 million. DNMR’s net loss and net loss per share increased 125.4% and 133.3% year-over-year to $28.05 million and $0.28, respectively.
Analysts expect DNMR’s EPS for the fiscal year ending December 2023 to decline 3.4% year-over-year to a negative $1.26. Its revenue for the same period is expected to come in at $94.37 million. Moreover, DNMR failed to surpass consensus EPS estimates in each of the trailing four quarters.
The stock has declined 22% over the past year to close the last trading session at $4.18.
DNMR’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
DNMR is also rated an F for Stability, Sentiment, and Quality and a D for Value. It is ranked last in the 83-stock Chemicals industry.
Beyond what we have mentioned above, one can see additional POWR Ratings for Growth and Momentum for DNMR here.
Gevo, Inc. (GEVO)
GEVO operates as a renewable fuel company through its four segments: Gevo; Agri-Energy; Renewable Natural Gas; and Net-Zero. GEVO commercializes gasoline, jet fuel, and diesel fuel to achieve zero carbon emissions and reduce greenhouse gas emissions.
In terms of the trailing-12-month ROCE, GEVO’s negative 17% compares to the 21.44% industry average. Likewise, its trailing-12-month ROTC and ROTA of negative 7.49% and 13% compare to the industry averages of 9.91% and 7.09%, respectively.
GEVO’s forward Price/Sales of 29.44x is significantly higher than the 1.33x industry average.
In the fiscal fourth quarter that ended December 31, 2022, GEVO’s loss from operations increased 63.5% year-over-year to $26.95 million, while its comprehensive loss came in at $24.26 million for the quarter, increasing 44.1% year-over-year. Non-GAAP adjusted net loss per share increased 37.5% year-over-year to $0.11.
Analysts expect GEVO’s EPS for the fiscal second quarter ending June 2023 to decline 33.3% year-over-year to a negative $0.08. Its revenue is expected to come at $561 thousand for the same quarter. Moreover, it failed to surpass consensus revenue estimates in three of the trailing four quarters.
The stock has declined 73.6% over the past year and 40.9% over the past six months to close the last trading session at $1.26.
GEVO’s poor prospects are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
GEVO is also rated an F for Value, Quality, and Stability and a D for Sentiment. It is ranked #82 in the same industry.
Click here to get the POWR Ratings for Growth and Momentum for GEVO.
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DNMR shares were trading at $4.14 per share on Friday morning, down $0.04 (-0.96%). Year-to-date, DNMR has gained 131.28%, versus a 8.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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