There can be more to a stock price plunge than meets the eye. This stock is an example of market over-reaction to a transient liquidity issue that has made the Price to Equity Ratio extraordinarily attractive.
The company is at the vanguard of the ethanol business in the United States. Almost 10% of revenue comes from other value-added products from corn. These include important processed food and animal feed ingredients. The business therefore has entries in high growth areas of the economy.
The stock has approached the 52-week low of $4.66 during the second half of March 2008. The primary reason for this kind of market sentiment is that the current demand for Auction Rate Securities (ARS) is not strong. The management has admitted that the ARS climate could delay commissioning of three new manufacturing sites. However, this does not affect the structural viability of the business. The company has marketed alliances with 15 ethanol and renewable energy producers. Significantly, Total Debt to Equity continues to be below 1. The management therefore has options in terms of both in-house manufacturing and distribution of third-part bio-fuel products to sustain its operations.
The Chemical Manufacturing Industry typically has a Price to Equity Ratio of over 30. This stock is now available at less than 7. It is an excellent opportunity to enter the ethanol chapter of US energy security and better emission norms. It is one of the best parts of the Basic Materials Sector in terms of growth potential.
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