As embarrassingly high-profile green company bankruptcies, in recent weeks, have reminded investors that governments may be poor at picking long-term winners, it is also worth repeating that it's not easy being green. Conventional methods of producing energy are cheap, easy and reliable, and those are high hurdles for new technologies to surmount. Nevertheless, while there is ample uncertainty left, Solazyme (NASDAQ: SZYM) is a green-tech company with technology well-worth a look from aggressive investors.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Quarterly Results are Trivial
In the larger scheme of things, Solazyme's quarterly earnings reports don't matter much right now because, frankly, there are no earnings. Solazyme did announce that revenue rose 93% from last year, but with total revenue still below $9 million, it's not all that significant. Likewise the GAAP net loss of $14 million is not so significant.

What is more significant is the $251 million or so in cash, on the company's balance sheet. Solazyme is pursuing an asset-light model, but there are still going to be substantial costs involved in developing its products and marketing them, so investors would do well to watch this item and bake assumptions of future capital needs into their models. (To know more about balance sheet, check out: Reading The Balance Sheet.)

Up and Away with Solajet
Around the time of earnings, the company also announced that United Continental (NYSE: UAL) had made the first commercial flight, with a significant usage of the company's jet fuel, Solajet. This flight used a 40% mix of Solajet and was, by all accounts, successful. Unfortunately, the cost-per-gallon is still economically a non-starter and Solazyme and partners like Honeywell International (NYSE: HON) and Chevron (NYSE: CVX), have a lot of work left to do.

By the same token, you do not go from flying Estes model rockets to a Mars landing, so it is still a significant incremental step.

Future Needs Largely in Place
One of the keys for an early-stage company like Solazyme, is quality partnerships and the company has those largely in place. For starters, the company has committed feedstock agreements for about 90% of its anticipated 2015 needs; the first year where Solazyme might be fairly expected to produce positive cash flow. (To know more about early-stage company stocks, read: Venturing Into Early-Stage Growth Stocks.)

Elsewhere, the company has signed agreements with Unilever (NYSE: UL), Bunge (NYSE: BG) and Roquette, to design and produce oils for use as petroleum, edible oils and ingredients in personal care products. Solazyme also has agreements in place with LVMH (OTCBB: LVMUY)'s Sephora and Liberty Interactive's (NASDAQ: LINTA) QVC, for its Algenist skincare line. Though it's likely not prudent to expect much from this product, and sell side analysts don't, even a little success could encourage others to join Unilever in working with Solazyme, for personal care products.

Ample Competition, but Ample Demand
By no means is Solazyme looking to do something entirely unique. The company's microalgae-based approach for turning plant sugars into oil is certainly proprietary, but there are a host of companies looking at using yeasts, advanced catalytic processes, enzymes and whatnot, to produce oils, fuels and plastics from biological feedstocks.

Amyris (NASDAQ: AMRS), for instance, is focused on yeast-based fermentation and has Total SA (NYSE: TOT) on board as a partner. Gevo (NASDAQ: GEVO) is using biocatalysts and specialized separation technology to produce isobutanol. Codexis (NASDAQ: CDXS) has partnered with Royal Dutch Shell (NYSE: RDS.A) and Cosan (NYSE: CZZ) to develop its "directed evolution technology" and develop better biocatalysts, while KiOR (NASDAQ: KIOR) is focusing on new catalytic cracking approaches; and those are just the public companies! Remember too, that larger chemical companies like E.I. Du Pont De Nemours (NYSE: DD) and BASF (OTCBB:BASFY) are keenly interested in these markets, as well as large agribusinesses, like Archer-Daniels Midland (NYSE: ADM), and specialty chemical companies, like Novozymes A/S (OTCBB: NVZMF).

The Bottom Line
As Solazyme isn't likely to produce positive free cash flow for many years, and may need to raise money before then, valuation is really a guessing game. In other words, Solazyme is a binary stock; if the technology works and proves commercially viable (and Solazyme seems to have a multi-year lead on its rivals, in terms of cost per gallon/liter/ton), the stock is more than a double from here. If Solazyme can't "crack the code" and offer an economically logical alternative to traditional hydrocarbons, there's no point in owning the stock, at all.

Given how interesting the technology is and how far along the cost efficiency curve the company has already come, this one is worth a serious look from aggressive investors.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!