The chemical industry continues to struggle with the lingering pandemic disruptions and the supply chain issues bolstered by the war in Ukraine. Moreover, a return to more service-focused consumption is pushing the plastics demand outlook lower, while the inflationary pressures are reducing demand from non-FMCG sectors.
The stubbornly high inflation and the consecutive rate hikes are making things worse. According to Fitch Ratings, slower global economic growth and a mild U.S. recession in 2023 will weaken chemical demand. Also, chemical sector revenues and profitability are expected to face pressure from weaker pricing, driven by rising interest rates, softer end-market demand, and higher input costs.
With the deteriorating macro environment, lower consumption might stall the chemical industry’s growth in the near term. Amid this backdrop, we believe it might be best to steer clear of fundamentally weak chemical stocks, Lightwave Logic, Inc. (LWLG), Gevo, Inc. (GEVO), and Loop Industries, Inc. (LOOP).
Lightwave Logic, Inc. (LWLG)
LWLG, a development stage company, focuses on developing photonic devices and non-linear optical polymer materials systems. It sells its products to electro-optic device manufacturers, systems manufacturers, networking and switching suppliers, semiconductor companies, Web 2.0 media, computing companies, aerospace companies, and government agencies.
For the fiscal second quarter ended June 30, LWLG’s loss from operations increased 9% year-over-year to $3.77 million. The company’s net loss came in at $3.80 million, while its loss per share came at $0.03.
LWLG’s trailing-12-month ROE, ROTA, and ROTC of negative 87.79%, 67.97%, and 53.70% are significantly lower than the industry averages of 6.71%, 2.47%, and 3.73%, respectively.
The stock looks overvalued at its current price. In terms of its trailing-12-month Price/Book, LWLG is currently trading at 29.93x, substantially higher than the industry average of 2.71x. The stock has declined 49.7% year-to-date and 23.6% over the past three months to close the last trading session at $7.48.
LWLG’s POWR Ratings are consistent with this bleak outlook. The stock's overall F rating translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LWLG is also rated an F for Value and a D for Quality, Stability, and Sentiment. In the Chemicals industry, it is ranked #84 out of 87 stocks.
Get the additional POWR Ratings of LWLG for Growth and Momentum here.
Gevo, Inc. (GEVO)
GEVO operates as a renewable chemical and advanced biofuel company through its four segments: Gevo; Agri-Energy; Renewable Natural Gas; and Net-Zero. GEVO commercializes gasoline, jet fuel, and diesel fuel to achieve zero carbon emissions and reduce greenhouse gas emissions with sustainable alternatives.
On October 25, GEVO announced a new sustainable aviation fuel (SAF) sales agreement with Qatar Airways (Qatar) for the purchase of 5 million gallons per year of sustainable aviation fuel (SAF) for five years from Gevo’s future commercial operations. However, the gains might be stretched over a long period of time.
In the second fiscal quarter ended June 30, GEVO’s total revenues decreased 74.3% year-over-year to $89 thousand. Its gross loss grew 48.7% from the year-ago value to $3.64 million. GEVO’s loss from operations amounted to $16.12 million, while its non-GAAP adjusted net loss per share came in at $0.06 for the quarter.
Analysts expect GEVO’s EPS for the fiscal third quarter ended September 2022, to decline 9.5% year-over-year to a negative $0.08. Its EPS is expected to remain negative this year. In addition, GEVO has missed the consensus revenue estimates in three of the trailing four quarters.
In terms of its forward EV/Sales, GEVO is currently trading at 30.74x, significantly higher than the industry average of 1.93x. Its forward Price/Sales multiple of 98.42 compares with the industry average of 1.42.
The stock has declined 48.8% year-to-date and 15.4% over the past three months to close the last trading session at $2.19.
GEVO’s poor prospects are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
GEVO is also rated an F for Value, Quality, and Stability and a D for Sentiment. It is ranked #86 in the same industry.
In addition to the ratings mentioned above, click here to get the POWR Ratings for Growth and Momentum for GEVO.
Loop Industries, Inc. (LOOP)
Headquartered in Terrebonne, Canada, LOOP, a technology company, focuses on depolymerizing waste polyethylene terephthalate (PET) plastics and polyester fibers into base building blocks.
For the quarter ended August 31, 2022, LOOP’s net loss came in at $7.71 million, while its loss per share came in at $0.16 for the quarter. As of August 31, the company’s total current assets stood at $32.42 million, compared to $52.13 million as of February 28, 2022.
The company’s EPS is expected to remain negative this year. In addition, LOOP has missed the consensus EPS estimates in three of the trailing four quarters.
Its forward EV/Sales and Price/Sales of 161x and 209.36x compared with the industry averages of 1.37x and 1.11x, respectively. LOOP shares have declined 53.3% over the past six months and 32.5% over the past month to close the last trading session at $3.1.
It’s no surprise that the stock has an overall rating of D, which translates to a Sell in our proprietary rating system.
LOOP is also graded a D for Value and Quality. In the Chemicals industry, it is ranked #81.
To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for LOOP, click here.
LWLG shares were trading at $7.96 per share on Friday afternoon, up $0.48 (+6.42%). Year-to-date, LWLG has declined -46.51%, versus a -17.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
3 Chemical Stocks to Sell Before the End of 2022 StockNews.com
