Renewable Energy Group Revisited

09/30/20 04:43:18 PM

by Matt Blackman

The stock has gone parabolic. So what's next?

Security: REGI
Position: N/A

Renewable Energy Group (REGI) is the largest biodiesel manufacturer in the US and sells a number of other products, with 14 bio-refineries and a feedstock processing facility. The company's mission is to "produce sustainable fuels that accelerate the transition to renewable, clean energy." It began selling its biodiesel products in 1996 and in 2019 produced nearly half a billion gallons of biodiesel and renewable diesel, which helped reduce carbon emissions by more than 4 million metric tons according to its website.

From an investment standpoint, it is an Environmental, Social and Governance (ESG) company; a class which is becoming increasingly popular with investors, money managers, funds and institutions. ESG funds totaled assets worth over $30 trillion in 2018 under management across the globe with assets of more than $12 trillion in the U.S., and this figure is rising rapidly.

Figure 1. Daily chart of REGI showing how it has performed since late February (green arrow) compared to its industry (Oil & Gas Manufacturing/Marketing) and long-term linear regression trendline (red).

Graphic provided by: Freestockcharts.com.

Fundamentally, the company reported sales of $2.6 billion with earnings of $563 million (EPS $0.02/share). Earnings per Share (EPS) increased more than 100% in its latest quarter and were up more than 780% year-over-year, according to its latest financial report. It also boasts a very modest trailing-twelve month Price/Earnings ratio of 3.8 as of September 18, 2020, according to the Wall Street Journal.

A look at the longer-term chart demonstrates just how well the company has outperformed other companies in the Oil & Gas Refining and Marketing industry. Since 2016 REGI is up 640% while the industry has lost 20% over the same period.

As highlighted in "Fossil Fuels Vs Clean Energy - Time to Shift Your Money?" (see below), clean technology and energy companies have greatly outperformed fossil fuel companies since 2014. Based on recent performance at least, there are few signs that this trend will end anytime soon!

Figure 2. Weekly chart of REGI showing it up more than 600% since 2016 versus its industry, Oil & Gas Refining/Marketing, which is down over the same period.

Graphic provided by: Freestockcharts.com.

Technically, the chart looks to have gone parabolic with the stock up more than 170% since April, which makes buying the stock a challenge at this point. Given that markets are entering the bewitching period before Halloween, which has seen some of the biggest corrections and bear market starts in history, it may be advisable to wait for a pullback on any new purchases. But this stock should be on the radar of any trader looking for a good company to add to their portfolios longer-term.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. Matt has earned the Chartered Market Technician (CMT) designation. Follow Matt on Twitter at www.twitter.com/RatioTrade

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Renewable Energy Group Revisited

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