Energy Common Sense: Sorry Wall Street, Amyris Made the Right Move
Maxxwell A.R. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last Friday, shares of Amyris Inc. (NASDAQ: AMRS) fell $2.74 or 28.16% after the company announced that they will not complete an expansion project in Spain in order to focus on scaling farnesene production at their Paraiso, Brazil facility.
What Does It Mean?
The unexpected move means the company will not achieve a positive cash flow for fiscal year 2012. Furthermore, it means the company will have to push its farnesene production target back at least one year, which was originally set for 390 million gallons per year by 2014.
Overreaction or Market Discipline?
CEO John Melo stated that Amyris is “focusing on operational quality vs. production quantity”. While the market responded with a knee-jerk reaction on Friday, the move may be a bit of an overreaction. From an engineering standpoint the company made the right decision. What good is a technology on paper if you can’t scale it?
Had investors taken a step back to look at the entire industry as a whole, they might have remembered that Metabolix (NASDAQ: MBLX) was dumped by Archer Daniels Midland on January 12th due to concerns over costs of their production process. Or perhaps they would have remembered that there was really no ground for Amyris to lose. Its sustainable chemical producing peers Solazyme (NASDAQ: SZYM) and Gevo (NASDAQ: GEVO) are both already placing their bets on 2015, with planned capacities of 500,000 metric tons of oils and 350 million gallons of isobutanol, respectively. So the fact that Amyris has to push its targets back one year from 2014 to 2015 just puts them on level ground.
Furthermore, Solazyme only owns one demonstration scale facility in Peoria, IL. After that the company has exactly zero production plants, although it is currently retrofitting a 100,000 metric ton per year facility in Brazil with Bunge (NYSE: BG). Gevo owns several facilities, but total production capacity for the company remains far from their 2015 goals.
Unfortunately, the reasonable approach of taking some short-term pain for improved long-term gain is not welcomed by Wall Street. I get it. Amyris will no longer have the possibility of being profitable this year. But was Amyris really worth 28.16% less on Friday than they were on Thursday? Their long-term goals should be fluid right now and should remain that way until they have a healthy production line.
The fact remains that any investment in the sustainable chemicals industry today is purely speculative and not based on performance. The drop has definitely created an investment opportunity for long-term investors, but unfortunately the worst may not be over. Wall Street may continue to dump Amyris shares and push the price lower. If you own shares of Amyris and are confident in their long-term success, then don’t worry. The company is certainly no worse off than their peers.
Ironically enough, the announcement may work in the company’s benefit. I find it difficult to believe that other players in the industry won’t come to the same realization. Eventually, others will have to face reality and admit that their production goals were too optimistic. The question isn’t if, but who.
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The Motley Fool owns shares of AMYRIS INC COM and Solazyme. BlacknGold has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.