Why Pacific Ethanol Stock Plunged 16% This Morning

What happened

If you haven’t noticed it yet, Pacific Ethanol (NASDAQ: ALTO) the stock is on a kind of tear. Since the beginning of the year, the shares of the alternative to gasoline The fuel maker rose fivefold, booking a fivefold gain of $0.81 per share at the start of this year to top $4 per share at the close of trading on Wednesday.

Today, however, Pacific Ethanol is down sharply. Early in the morning, the title lost more than 16%. It pared those losses as the day progressed, but at a recent price of $3.85, the stock is still down 5.2% as of 10:50 a.m.

Image source: Getty Images.

So what

Why the sudden sale? It’s certainly not because of income. Pacific Ethanol released its second quarter 2020 results on Tuesday, and while quarterly sales may have slumped during the big shutdown (down 39% year-over-year), Pacific Ethanol still managed to improve. its profits considerably. The company reported net income of $0.27 per share for the quarter, compared with a net loss of $0.17 a year ago, and the loss of $0.20 per share that Wall Street had predicted. .

This, incidentally, was Pacific Ethanol’s first quarterly profit in more than three years. It turns out that while producing ethanol as a gasoline additive in the middle of a recession may not be the best business model, producing ethanol to use as ethanol — alcohol that can be used in sanitizers and disinfectants – is downright creepy company to be in in the midst of a pandemic.

During the quarter, Pacific Ethanol “increased production of high-quality alcohol” for these purposes to meet demand which “has increased significantly due to the ongoing coronavirus pandemic.”

Now what

Mind you, Pacific Ethanol isn’t quite out of the woods yet – and that may be why investors are choosing to take the money and run this morning. The company’s long history of losing money means that, absent a pandemic, the ethanol business is probably not a good market.

Still, the influx of new money entering Pacific Ethanol’s coffers enabled the company to pay off $34 million in debt in the second quarter. If the pandemic and the influx of cash continue, Pacific Ethanol says it is on track “to reduce our total term debt outstanding at year-end by at least $70 million. – halving its debt in the space of a single year.

The more Pacific Ethanol pays down its debt now, when things are going well, the more likely the company will remain profitable in the future, when things return to normal.

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