Renewable Energy Group Stock: Price Weakness Provides Great Opportunity

Renewable Energy GroupRenewable Energy Group Inc Could Clean Up Under Biden’s Green Plan

Green energy was not something you wanted to talk about in the last U.S. administration, but with President Joe Biden in command, it has become a major talking point. Solar, wind, hydrogen, and electric stocks have surged.

If a business has anything to do with saving the environment, you can bet the stock market has rewarded it. With that in mind, consider Renewable Energy Group Inc (NASDAQ:REGI), a producer of biomass-based diesel as a viable alternative to fossil fuels.

The company uses waste such as natural fats, oils, and greases to produce clean biomass diesel. The result is a lower carbon footprint. Given that the U.S. has rejoined the Paris Agreement on climate change, REGI stock is ideally suited to benefit from the green energy movement.

Investors have already rewarded Renewable Energy Group stock. After trading at a 52-week low of $16.05 in March 2020, the stock staged an impressive rally, surging to a record $117.0 on February 10, 2021 before pulling back to the current $80.0 level.

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REGI stock recently broke below its 50-day moving average and could move toward trendline support around $70.00, which could be a good opportunity.

Chart courtesy of StockCharts.com

While Renewable Energy Group stock could move lower, I view price weakness as an opportunity for investors to average down.

Strong Fundamentals Support Bull Case for REGI Stock

Renewable Energy Group Inc nearly doubled its revenues from 2015 to 2019. Its revenues grew in each of those years, resulting in a compound annual growth rate (CAGR) of 17.4%.

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

(Source: “Renewable Energy Group, Inc.” MarketWatch, last accessed February 26, 2021.)

Renewable Energy Group has likely been impacted by the COVID-19 pandemic. Analysts estimate that its revenues contracted by 19.9% to $2.1 billion in 2020 but will rally by 16.0% to $2.5 billion in 2021. (Source: Renewable Energy Group, Inc. (REGI),” Yahoo! Finance, last accessed February 26, 2021.)

Meanwhile, the company has produced positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in five consecutive years. This included a record $478.7 million in 2019. The CAGR for the company’s EBITDA from 2015 to 2019 was a staggering 160.3%.

Fiscal Year EBITDA (Millions) Growth
2015 $10.4 N/A
2016 $133.8 1,183.5%
2017 $47.0 -64.9%
2018 $332.4 607.3%
2019 $478.7 7.4%

(Source: MarketWatch, op. cit.)

Moreover, Renewable Energy Group Inc strengthened its earnings per share (EPS) in 2018 and 2019, based on generally accepted accounting principles (GAAP).

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

(Source: MarketWatch, op. cit.)

Analysts expect that the company’s GAAP profits fell to $3.07 per diluted share in 2020 but will rally to $5.07 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

Renewable Energy Group Inc generated positive free cash flow in three of the last five reported years, which is encouraging, but I would like to see consistency.

Fiscal Year Free Cash Flow (Millions) Growth
2015 $15.7 N/A
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

Institutions and insiders have been active in Renewable Energy Group stock. Shares of Renewable Energy Group Inc are held by 386 institutions. Insiders bought 44,449 shares over the last six months. (Source: Yahoo! Finance, op. cit.)

REGI stock’s valuation is enticing. The company trades at an attractive 1.25 times its consensus 2021 revenue estimate and 15.8 times its consensus 2021 EPS estimate. The valuation allows space for Renewable Energy Group stock to rise.