Headquartered in Cupertino, California, Aemetis Inc. (AMTX) is a renewable natural gas, fuel, and biochemicals company focused on acquiring, developing, and commercializing breakthrough technologies that substitute petroleum-based products and reduce greenhouse gas emissions. The stock has gained 432.4% over the past year and 67.7% over the past month, driven by the company’s continued efforts to replace carbon-intensive transportation fuels with renewable energy and its recent deal with U.S. carrier Delta Air Lines Inc. (DAL) to provide sustainable aviation fuel (SAF) worth over $1 billion. AMTX also introduced the Carbon-Zero manufacturing method, which aims to decarbonize the transportation industry using today’s infrastructure.

However, its shares have been down 24.7% over the past six months. Closing Friday’s trading session at $19.7, AMTX’s stock is trading 28.2% below its 52-week high of $27.44, which it hit on April 08, 2021. Moreover, the Biden administration is considering slashing the country's biofuel blending standards, a move prompted by a drop in gasoline consumption during the pandemic. This, along with its premium valuations and weak financials, could cause its shares to witness a pullback in the near term.

Here’s what could influence AMTX’s performance in the near term:

Uncertainty in the Biofuel Industry

This month, the government is considering reducing biofuel blending mandates, a move triggered by a drop in gasoline demand amid the coronavirus pandemic. This action could negatively impact ethanol producers like AMTX. Also, the amount of conventional renewable fuel, including ethanol, would decline from 15 billion gallons to about 12.5 billion gallons in 2020, 13.5 billion gallons in 2021, and 14.1 billion gallons in 2022.

Weak Financials

AMTX’s operating loss came in at $2.13 million, compared to an operating profit of $9.99 million for the second quarter ended June 30, 2021. The company reported a net loss of $10.56 million, compared to a net profit of $2.19 million in the prior-year period. Its loss per share amounted to $0.34, compared to an EPS of $0.10 in the same period last year. In addition, its adjusted EBITDA came in at a negative $1 million, compared to an adjusted EBITDA of $11.19 million in the second quarter of 2020.

Its trailing-12-month EBITDA margin, ROA, and net income margin are negative 9.8%, 38.7%, and 31.5%, respectively. Furthermore, AMTX’s trailing-12-months gross profit margin of 1.5% compares to the industry average of 41.2%.

Stretched Valuation

In terms of forward EV/Sales, AMTX is currently trading at 3.97x, 57.4% higher than the industry average of 2.52x. In addition, its forward Price/Sales of 2.92x is 110.7% higher than the industry average of 1.39x.

Weak Earnings Estimates

Analysts expect AMTX’s EPS to decline 2.9% in fiscal 2021. The EPS is expected to remain negative in the current year and next year. In addition, the company failed to beat the consensus EPS estimates in three of the trailing four quarters.

Unfavorable POWR Ratings

AMTX has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AMTX has an F grade for Quality and Value. These are justified given the stock’s negative profit margin and higher-than-industry valuation multiples.

Also, the stock has a D grade for Stability, which is consistent with its higher volatility compared to its peers.

Of the 93 stocks in the B-rated Chemicals industry, AMTX is ranked #90.

Beyond what I’ve stated above, we have rated AMTX for Momentum and Growth. Get all AMTX ratings here.

Bottom Line

While AMTX’s strategic deals and collaborations to offer sustainable fuel has helped it witness significant momentum over the past few weeks, its weak fundamentals and poor profitability do not justify its stretched valuation. Moreover, the speculations surrounding the Biden administration’s efforts to regulate biofuel blending requirements could impact its growth and lead to the stock witnessing a pullback in the near term. So, the stock is best avoided now.

How Does Aemetis Inc. (AMTX) Stack Up Against its Peers?

While AMTX has an overall POWR Rating of F, you might want to consider looking at its industry peers, AGC Inc. (ASGLY) and Arkema S.A (ARKAY), having an A (Strong Buy) rating.

AMTX shares were trading at $17.32 per share on Monday morning, down $2.38 (-12.08%). Year-to-date, AMTX has gained 595.58%, versus a 15.71% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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