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. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  5. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  6. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  7. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  8. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  9. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

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!