Green Plains has been on fire lately. In the past six months alone, the company’s stock price has rocketed 60.2%, reaching $16.25 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Green Plains, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Green Plains Will Underperform?
Despite the momentum, we’re swiping left on Green Plains for now. Here are three reasons we avoid GPRE, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term performance can give signals about its business quality. Even a bad business, especially in a cyclical industry, can shine for a year or so, but a top-tier one should exhibit resilience through cycles. Unfortunately, Green Plains struggled to consistently increase demand as its $1.94 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a low quality business.
2. Low Gross Margin Reveals Weak Structural Profitability
While energy gross margins can be distorted by commodity prices, hedging, and short-term cost swings, sustained margins across a full cycle reflect a producer’s underlying asset quality, infrastructure position, and cost structure.
Green Plains, which averaged 5.5% gross margin over the last five years, exhibited bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins.
3. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Green Plains’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 2.9%. This means it lit $2.85 of cash on fire for every $100 in revenue.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Green Plains, we’ll be cheering from the sidelines. After the recent rally, the stock trades at 9.8× forward P/E (or $16.25 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
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