Renewable Energy Group Inc: This Green Play Is Dirt Cheap & Can Double

Renewable Energy Group Inc: This Green Play Is Dirt Cheap & Can DoubleRenewable Energy Group Inc Makes a Great Green Energy Play

The world is moving rapidly toward a greener economy, despite what we sometimes hear in this country. An intriguing and cheap play on the biomass fuel market (an alternative to fossil fuels) is Renewable Energy Group Inc (NASDAQ:REGI).

The company applies innovative technologies to convert often-discarded waste such as natural fats, oils, and greases into advanced low-carbon biofuels. Renewable Energy Group sells the biofuel for use in transportation and heating, as an alternative to traditional diesel.

Renewable Energy Group stock has great long-term prospects as the demand for alternative energy goes higher. Despite this, REGI stock is currently super-cheap, considering the company has consistently grown its revenues and profits.

Renewable Energy Group stock traded at a 52-week low of $9.90 in August 2019 and has staged a nice rally, up a healthy 65% over the past year.

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The chart suggests another breakout attempt at $32.00 and a move toward the 52-week high of $34.69. There is key channel support at $22.00.

Chart courtesy of StockCharts.com

Cheap Valuation Supports a Double for REGI Stock 

A glance at the fundamentals of Renewable Energy Group shows that there’s a level of consistency that is difficult to find anywhere else.

The company ramped up its revenues in five consecutive years, to a record level in 2019.

Fiscal Year Revenues (Billions) Growth
2015 $1.4
2016 $2.0 47.1%
2017 $2.2 5.6%
2018 $2.4 10.6%
2019 $2.6 10.8%

(Source: “Renewable Energy Inc.MarketWatch, last accessed July 20, 2020.)

Revenues are expected to fall 23.1% to $2.0 billion this year, which is not surprising, given the pandemic. Then it’s expected to rise 14.8% to $2.3 billion in 2021. (Source: “Renewable Energy Group, Inc. (REGI),” Yahoo! Finance, last accessed July 17, 2020.)

Along the way, Renewable Energy Group has produced positive earnings before interest, taxes, depreciation, and amortization (EBITDA), including growth in three of the last four years.

Fiscal Year EBITDA (Millions) Growth
2015 $10.4
2016 $133.8 1,183%
2017 $47.0 -64.9%
2018 $332.4 607.2%
2019 $478.7 44.0%

(Source: MarketWatch, op. cit.)

Renewable Energy Group is also profitable, based on generally accepted accounting principles (GAAP) earnings per share (EPS) figures that include impressive record results in 2018 and 2019.

Fiscal Year GAAP Diluted EPS Growth
2015 -3.44
2016 $1.06 130.8%
2017 -$2.04 -292.6%
2018 $6.52 419.2%
2019 $8.78 34.8%

(Source: MarketWatch, op. cit.)

Renewable Energy Group is estimated to see its profits fall to $3.28 per diluted share this year but rally to $5.55 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

Despite the decline, the numbers look outstanding, based on the valuation going forward.

Renewable Energy Group has also managed to generate positive free cash flow in three of the last five years.

Fiscal Year Free Cash Flow (Millions) Growth
2015 $15.7
2016 $14.6 -6.9%
2017 -$37.8 -358.7%
2018 $319.1 945.0%
2019 -$68.4 -121.5%

(Source: MarketWatch, op. cit.)

Analyst Take

The global and domestic push to green fuels will provide strong tailwinds for Renewable Energy Group stock.

As such, REGI stock has been seeing love from insiders, which is always a bullish sign. Insiders added a net 205,221 shares over the last six months. (Source: Yahoo! Finance, op. cit.)

Furthermore, Renewable Energy Group stock is dirt cheap, currently trading at 4.7 times its consensus 2021 EPS estimate.