How Low Will KiOR Go?

Shares of KiOR (NAS: KIOR) hit a 52-week low today. Let's take a look at how the company got there to find out if cloudy skies remain on the horizon.

How it got here
KiOR has had an up-and-down year, with multiple major pops this year that have been more than balanced out by steady selling pressure. The company remains highly speculative, as it's still in the process of building its first facility. That facility might start generating revenue by the end of the year, but until then, investors can only wonder at the company's potential.

The biofuels (and bio-products) industry hasn't been good to investors over the last year, though -- but at least KiOR is doing better than Amyris (NAS: AMRS) , which hasn't yet successfully diversified from biofuel production:


KIOR Total Return Price Chart

KIOR Total Return Price data by YCharts<</p>

Even Solazyme (NAS: SZYM) , which merited inclusion in Fool analyst Alyce Lomax's real-money portfolio, has fallen on hard times. The biofuel business model is having a difficult time answering questions about its long-term profitability.

What you need to know
None of the major sustainable-chemical companies have reached profitability, and in nearly every case, that day is years in the future, if it's expected at all.

Company

P/S Ratio

Debt to Equity

5-Year Growth Estimates (Annualized)

KiOR NM 50.8 34%
Amyris 1.1 54.2 21%
Solazyme 15.0 7.6 6%
Gevo (NAS: GEVO) 2.3 42.6 25%

Source: Yahoo! Finance. NM = not material due to lack of earnings.

A post to the Fool's blog network lays out a solid analysis of the industry's headwinds, centered on the fact that getting the technology up to scale poses formidable challenges. Gevo, for one, switched from using "forest-waste" style biomaterial to corn in order to better meet its targets. That hasn't helped its stock yet. Uncertainty over the availability of government subsidies has also been a factor in the sector's woeful performance, according to Fool contributor Brian Stoffel.

I've pointed out in the past that the biofuel calculation doesn't add up any way you slice it. Enterprising types have been trying to make fuel out of plant goop for many years, and even current corn ethanol production only makes sense in the context of massive government support. It's just not efficient enough to justify the expense.

Branching out into "natural chemicals," as Solazyme has done, could help KiOR succeed over the long run. But that will only work if the by-products of its process make economic sense. Relying on government support to make an inefficient product as a business model tends to do poorly over the long run. Just ask solar investors, who must feel thoroughly thrashed by now.

What's next?
Where does KiOR go from here? That will depend on its ability to successfully develop its conversion process into a profitable one. Short-term traders might buy on the occasional bit of good news, but without a sensible plan for long-term profitability, there's little reason to jump into KiOR or any other sustainable-chemical company. The Motley Fool's CAPS community doesn't like this company's chances, offering it a lowly one-star rating, with only a third of CAPS All-Stars weighing in expecting the stock to beat the market going forward.

Interested in tracking this stock as it continues on its path? Add KiOR to your Watchlist for all the news we Fools can find, delivered to your inbox as it happens. If you're looking for other transformative opportunities, take a look at The Motley Fool's latest free report, "3 Stocks to Own for the New Industrial Revolution." These companies are already profitable, and their prospects could be brighter than those of any biofuel. Find out everything you need -- click here for your free information now.

At the time this article was published Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Solazyme. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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correction.correction

Hello Alex,

I would like to point out an inaccuracy in your article with regard to GEVO. You say:

"Gevo, for one, switched from using "forest-waste" style biomaterial to corn in order to better meet its targets"

Gevo has never switched from forest-waste to corn. Gevo has always planned, and currently is, producing renewable isobutanol from corn.

You may have confused this with the forest-waste it is testing to produce cellulosic isobutanol (among other type of waste material). Cellulosic isobutanol is not something that they can produce to scale yet, and they are aiming for industrial production in 2014-15.

June 19 2012 at 6:39 PM Report abuse rate up rate down Reply