Renewable Energy Group: Deep Discounted Green Play Can Easily Double

Renewable Energy Group: Why This Beaten-Up Dog Can Recover

We know there’s minimal federal support at this time for green energy, but that doesn’t mean the alternative energy sector should be shunned, as the rest of the world is behind a move to cleaner energy.

While the focus is on solar, wind, and battery power, an area that is often overlooked is the production of biomass-based diesel as an alternative to fossil fuels.

If this intrigues you, Renewable Energy Group Inc (NASDAQ:REGI) is worth a look given the small-cap stock is down 33% over the past three months and over 50% from its 52-week high of $32.52 in October 2018.

Chart courtesy of StockCharts.com

Renewable Energy uses natural fats, oils and greases to produce biomass diesel that is clean and has a lower carbon footprint.

The majority of facilities are in the U.S, but Renewable Energy is focused on major expansion to the greener pastures of Europe.

The Fundamentals Support a Bull Case for REGI Stock

The thing you will notice about Renewable Energy stock is its strong revenue growth.

Despite being a relatively small company with about $584.0 million in market cap, Renewable Energy generated $2.38 billion in revenues in 2018, recording four consecutive years of growth and a near doubling from 2014.

(Source: “Renewable Energy Group, Inc.” MarketWatch, last accessed July 18, 2019.)

Now there are some concerns for REGI, as revenues are expected to contract 4.20% to $2.28 billion in 2019, but this is already factored into the weak share price. (Source: Renewable Energy Group, Inc. (REGI),” Yahoo! Finance, last accessed July 18, 2019.)

The positive is Renewable Energy is estimated to ramp up revenues by 12.1% to $2.56 billion in 2020.

REGI is also delivering positive earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA surged 607.16% to $332.42 million in 2018.

(Source: MarketWatch, op. cit.)

Renewable Energy is generating profits including a 419.18% jump to $6.52 diluted earnings per share (EPS) in 2018, albeit the number was extreme.

(Source: Ibid.)

For 2019, REGI is expected to report a decline in earnings to $0.06 per diluted share but come back with $2.03 per diluted share in 2020. (Source: Yahoo! Finance, op. cit.)

The first quarter saw earnings fall 64% short of the consensus, which led to the selling but if Renewable Energy can deliver in 2020, REGI stock could surge.

Renewable Energy Group Inc delivered an impressive positive free cash flow (FCF) of $319.08 million in 2018, up 945% versus 2017 but I expect the FCF to fall back.

(Source: MarketWatch, op. cit.)

Analyst Take

In my view, the fundamentals support a higher price for REGI stock. The expected weakness in 2019 is already discounted into the weak share price.

Insiders are buying Renewable Energy stock, which is bullish.

REGI stock trades at a mere 7.66 times its 2020 consensus. A doubling in the multiple and the share price is clearly in the cards for aggressive traders.