REGI stock investors saw massive returns in February 2021, only to see them evaporate throughout the rest of the year. As the demand for cleaner fuel alternatives continues to skyrocket, companies like Renewable Energy Group (NASDAQ: REGI) are starting to see their profits grow.
There have been numerous challenges in the past few years. The pandemic has significantly lowered demand for transportation fuels and supply chains. But, even with all of those challenges, the clean fuel company grew and continued to expand.
The U.S Energy Information Administration confirmed in 2020, total U.S. energy consumption was equivalent to nearly 93 quadrillion British thermal units. This may seem like a massive number, but it’s actually 7% lower than in 2019, a record drop.
All fuel types (petroleum, natural gas, and coal) experienced less demand, with coal seeing the most considerable reduction (-19%). The good news for clean energy investors is that renewable energy was the only energy source that expanded from the previous year (+2%)
With REGI stock down over 30% since the beginning of the year, investors wonder- will Renewable Energy Group stock rebound? Let’s take a closer look at how that can happen.
Analyzing REGI Stock Performance
In February, Renewable Energy Group stock looked unstoppable. It was up over 60% in a little over a month to start the year, and everything seemed to be going in the shareholder’s favor. But, since the stock hit an all-time high price of $117 per share, the renewable energy stock has taken its foot off the gas. Share price saw a significant drop and is now trading at just over $45.
To be fair, REGI stock price isn’t the only asset that has lost value since February. Several renewable energy stock names have failed to deliver returns in the past several months.
The Invesco WilderHill Clean Energy ETF (NYSE: PBW), which holds some of the top renewable energy companies, has shown a similar setup. The ETF started the year strong, growing over 30% to nearly $140 a share. However, since then the stock has lost over a third of its value. It’s currently settling around $80 at the time of this writing.
Why Renewable Energy Has lost Value?
Investors can attribute the losses to a few different factors that have impacted the broader market.
- Rising Commodity Prices – Let’s face it. When commodity prices start to climb, especially earth metals, we tend to see higher costs getting passed down to consumers. This idea is no different when it comes to the renewable energy sector. If commodity prices rise, it costs more to build and expand, which can eat into profit margins. Not only that, but it can also cost more to complete day-to-day operations.
- Overbought – Another common theme as to why REGI’s share price is down this year is because of the incredible run the stock went on leading up to drop. In the past five years, REGI stock is up over 430%. At its highest share price, it reached upwards of over 1100% growth. Renewable Energy Group and other clean energy names rallied after U.S President Biden won the election. Biden has continually promoted his intentions to boost the clean energy industry through funding.
- Fed Tapering – There has been a lot of talk over the past year about when exactly the Fed will begin tapering the purchasing of assets, a sign generally taken that interest rates will rise. When interest rates rise, it can hurt high-growth industries, such as renewable energy.
Despite these challenges, Renewable Energy Group’s stock currently has 423 institutional investors. Blackrock (NYSE: BLK) and The Vanguard Group are the largest holders. Another positive sign for investors – over 94% of REGI stock belongs to institutional investors.
Renewable Energy Group Financial Results
Renewable Energy Group’s share price hasn’t been performing the way investors hoped lately. However, the company is still growing as consumers are increasingly looking for clean fuel alternatives like biofuel.
The company has managed to continue expanding its operations by optimizing its product, increasing sales of mixed fuels, and additional incentives being offered to consumers. The company’s latest Q2 earnings release noted that sales of blended biodiesel and renewable diesel have grown at a compound annual growth rate (CAGR) of 85% since 2018.
Here are a few additional highlights from REGI’s second-quarter financials:
- Revenue Growth – One key sign of a growing company – revenue growth. REG grew its revenue from $544 million in Q2 2020 to $816 million in Q2 2021, representing 50% growth year over year. The revenue growth is primarily from higher selling prices.
- Partnership with Manchester United – REG also signed into a partnership with Manchester United, the world’s most popular soccer club, to help spread the awareness of sustainable fuel alternatives.
- Carbon Saved – The company produced 132 million gallons of biofuel in the second quarter, which amounts to over 1 million metric tons of carbon saved through this process.
The strong demand for bio-based diesel helped fuel the company’s surprise earnings beat. CEO Cynthia Warner had this to say about the quarter…
“This solid performance, alongside our successful navigation of the many external challenges of the past year, reinforces our optimism about the future.”
Where Will REGI Stock Be In 5 Years?
As more countries and corporations promise carbon reductions, Renewable Energy Group has the product to help them meet their targets. International agencies like the United Nations and International Energy Agency have set a goal of net-zero carbon emissions by 2050.
Suppose REG can capitalize on the opportunity as these countries and other organizations work towards their sustainability goals. In that case, REGI stock has the potential to create significant returns for investors once again. But, if raw material costs continue to rise, it can hurt profit margins and put pressure on the share price.
In the long term view, REG has the upside potential to grow into an expanding industry. So long as Renewable Energy Group can stave off the competition, REGI stock investors should continue to see growth.
Renewable energy is an industry that’s rapidly evolving. The latest technology and breakthroughs are changing by the minute, and investors need to be informed. For more on REGI stock and all the latest clean energy developments, join our free Profit Trends e-letter below.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.