Gevo Incorporated (NASDAQ: GEVO) walked up the stock market podium to announce its largest renewable energy contract in history. The news instantly ignited a buying frenzy on Wall Street. Investors who missed Thursday’s boat are wondering whether the Friday boat will bring them a capital gain. However, investor optimism receives considerable criticism from the bears as GEVO’s stock could crash and burn. Thus, today’s article will explain to our readers why GEVO is up, the likelihood of a pump and dump, and whether YIG sees value.
Table of contents 1. Why is the Gevo stock up? 2. Is there value, or is Gevo another pump and dump? 3. Does YIG see value in an investment?
Why is the Gevo stock up 200%?
On Thursday, Gevo announced a renewable Hydrocarbons Purchase and Sale agreement with Trafigura. Under the contract, Trafigura is expected to take 25MPGY of renewable hydrocarbons. The majority of the hydrocarbon distribution is expected to be low-carbon gasoline with a smaller portion of the volume for sustainable aviation fuel (SAF), starting in 2023. However, to understand the significance of the contract for Gevo, investors must know who Trafigura is. Trafigura is one of the world’s largest commodity trading companies, specialising in metals and energy. Thus, Trafigura ‘s sheer size not only put Gevo on the map but also marked Gevo’s largest contract in their history. Investors instantly reacted positively to the Trafigura Hydrocarbons announcement, triggering a 200% buying party on Thursday.
Is Gevo just apart of the Kodak, Genius Brands, and Urban One pump and dump collection?
The million-dollar question is, will Gevo become a pump and dump? To a large extent, Gevo’s volcanic activity will likely fizzle out for three reasons. First, Gevo fell below its resistance level $1.50 in pre-market trading (at the time of writing). Whenever a stock breaks below resistance, it often activates significant selling pressure. Consequently, the bearish momentum continues. Second, the shift in sentiment from bullish to bearish in pre-market trading indicates investors are taking their profits. Lastly, Gevo’s astronomical surge was catalyst based.
Eventually, the euphoria will fade. Because if Gevo does not release any more price-sensitive events, than short-term investors lose patience and sell. Do not get me wrong we could see Gevo gap up again today. However, the lack of future announcements will make the bullish outbreaks challenging to sustain. Similar to that of Kodak, Genius Brands, and Urban One. Overall, the likelihood of Gevo’s growth mutating into a pump and dump is high, but the company’s should follow a bullish path in the long-term. (opinion not advice)
Does YIG see value in an investment in the Gevo stock?
Before I begin, I am obliged to remind our viewers that this is not financial advice but rather investment commentary from extensive research
Short answer: Shorting the hype and investing for the long-term seems to hold the most potential (opinion not advice)
While riding the wave sounds tempting because of potential gains, you could make if the GEVO mirrors Thursday’s run. However, past performance is not an indicator of future performance, and the chance of a pump and dump is high. Thus, the risk of riding the hype is not palatable.
Despite the bearish short-term sentiment, all signs are pointing towards a bullish future (opinion not advice). Especially, as hedge funds and investment banks such as Morgan Stanley, Renaissance technologies and Proequities Incorporated are rallying behind Gevo. Thus, adding weight to the idea of a long-term investment. However, investors can also short GEVO in the meantime to capitalise off the potentially bearish run. YIG would like to point out that going down the put route instead of selling calls will mitigate your risk. Overall, the strategy that involves the least risk, in my personal opinion, is investing in GEVO stock for the long-term and using a put to capitalise off the short term bullish sentiment.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.