SZYM Anyone?

Investment Analysis Clubs Saul’s Investing Discussions
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I bought into SZYM at $11 and some change as a small % of my portfolio. I was set on not adding to that until the business would show it is bringing its products to market in increasing volume which would show the production facilities they have been building are ramping up as well. This will be a slow process for another 12 - 24 months or so, I know.

However, it looks like Mr Market is all but giving up on SZYM. The only reason I can think of is impatience.

My intention for the rest of the year was adding to my more conservative PE positions, but now I am seriously thinking of adding to SZYM.

Anyone else?

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It keeps falling. It is close to $6 now. I want to buy as well but am afraid that it is not done. Do not know if the thesis for the company has changed. I am unaware of any big news for this to happen.

Htownrich

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Do not know if the thesis for the company has changed.

No public-known information that suggests that thesis for the company has changed. But the persistent share price drop is real and cannot be simply explained by general market down-turn IMHO. It dropped more persistently and in larger scale than the general small cap market. I think its current price is at least a 2-year low.

There are a few things we do know.
*) It has ample cash and so it is not likely there is an immediate/near term cash problem.

*) It has some amazing products that have big potential and are being sampled or in low volume commercial production

*) It has two new plants in ramp-up mode that would greatly increase revenue in 12-18 months

*) It has a technology platform on which they have launched and will continue to launch innovative new products

So why the sudden and drastic change of the sentiment? A few possibilities

*) Investors’ impatience. In a volatile market, some or many investors want to get rid of more risky stocks to get cash or rotate into less risky names. This may actually have a snowball affect as more investors see the price drop and become panic.

*) The market (big institutions/mutual funds/insiders) knows something that we do not know. But what could that be?
Here are my guesses. In their Q2 CC they said that the focus areas for the remaining of 2014 are

First, this continued progress on establishing and ramping production at our large scale manufacturing facilities. …

Is it possible the Moema plant is having ramp-up problems? In their Q2 CC, they said they

“… worked diligently and quickly to address these issues and put backup systems in place to reduce the likelihood and potential impacts of future disruption.”

So it sounds they didn’t completely fix the problems and there may be future disruptions. What would be the consequences of such disruption? Would equipment be damaged? Would the goods-in-processing be damaged? How much impact would be to the delivery schedule to the customers? Is it possible there have been one or more of incidents of this nature that disrupted processes and scared away potential customers or put the ramp-up in pause?

The second focus area is commercial activity. The progress we’ve talked about today including Akzo, the ramp in shipments out of Clinton/Galva, a new important food ingredients customer and additional distribution partners, progress with Encapso and further expansion of the Algenist distribution. …

Is it possible there has been a lack of customer response to their products?

I am not suggesting anything. I am just trying to see what could justify the seemingly excessive selling of the stock. IMHO, even if Moema plant has encountered such problems, it is still a speed bumper and does not change the investment thesis unless the plant is severely damaged or destroyed due to those incidents.

Or it is very likely there is nothing major. It is all part the market volatility driven by investor impatience. And to some extent this post may reflect the impatience on my part.

-M

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So why the sudden and drastic change of the sentiment? A few possibilities

Mark,

When everything is down some investors take the opportunity to harvest tax losses by selling one stock that is down to use the proceeds to buy a different stock that is also down. If investors see that it’s more likely to see a short term rebound in the stock they are buying than the stock they are selling. I am looking at doing this myself. For example, I’m down around 30% on AEYE and I was going to wait for a rebound to exit most of my position. Now that some other stocks are down a similar amount, I will look at making some shifts. This will move me into stocks that are less risky. It also allows me to lower my 2014 tax bill by offsetting some of my YTD short term capital gains with a loss.

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So why the sudden and drastic change of the sentiment? A few possibilities

Mark,

When everything is down some investors take the opportunity to harvest tax losses by selling one stock that is down to use the proceeds to buy a different stock that is also down. If investors see that it’s more likely to see a short term rebound in the stock they are buying than the stock they are selling. I am looking at doing this myself. For example, I’m down around 30% on AEYE and I was going to wait for a rebound to exit most of my position. Now that some other stocks are down a similar amount, I will look at making some shifts. This will move me into stocks that are less risky. It also allows me to lower my 2014 tax bill by offsetting some of my YTD short term capital gains with a loss.

Chris

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I think its current price is at least a 2-year low.

The current price [6.04] is the lowest it’s ever been.

http://stockcharts.com/h-sc/ui?s=SZYM&p=M&yr=3&m…

Not a pretty picture. Not what I want to wait and hope on…
while the market takes my money.

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My intention for the rest of the year was adding to my more conservative PE positions, but now I am seriously thinking of adding to SZYM.

Hi Not Dutch, I recently said I’d wait and see on this, but in the low six dollar range I couldn’t help myself, and added a truly tiny amount to my position. It may be throwing good money after bad, but at six dollars and change…?

Saul

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Not a pretty picture. Not what I want to wait and hope on…
while the market takes my money.

I find peoples comments a bit funny in downturns like this. I understand what you are saying, but the reality is the market isn’t taking anyone’s money. When you buy stock you are making a purchase. You are trading x dollars for y number of shares ownership in a company. You no longer own the money because you traded it for ownership in a company. Unless dilution happened since said exchange you still own the same % ownership in the company. If you don’t believe in the long term future of the company you purchased I would advise next time not buying the company. Unless I missed something no news has been released as of yet at least. The company as we know it is the same as it was a month ago or since the company last made a press release. The only difference is the value someone is now willing to pay you for your shares has decreased. If you don’t think this is a fair price for your shares in the company just don’t sell. If you believe in the company you own long term and the company continues to perform then the market will eventually reflect that performance. I don’t see many private business owners constantly checking the market to see what others are willing to pay for their business. I also don’t see many private business owners willing to sell out their ownership in their business at 50% discount to what they feel it is worth. If someone offered them a price they didn’t like for their business they would most likely politely decline unless they needed to liquidate quickly for some reason. They wouldn’t start panicking about all the money they “lost” if they sold at a discounted price. They would just go on with their lives. The main difference is private business owners don’t have offers for their business thrown at them each second. If you truly believe in the long term future of the company and it will be worth more 3 years from now just quit looking at the market prices daily. Focus on company press releases and what is going on within the company. Maybe spend some time reviewing the previous earnings releases and maybe determine what you feel the long term value of your ownership truly is worth. This will help you deal with the short term weakness. These are thoughts I run through my mind in times like these. When a price on a stock I own is in decline I like to review the releases and remind myself of the long term thesis. This helps me get through the weakness.
Personally I feel Solazyme has a lot of long term potential with a virtually limitless long term market opportunity. They are disrupting several existing markets with a superior and more sustainable product. I am taking advantage of the fire sale on shares to bring down my average cost. Long term I could be wrong but that is a risk we take as investors.

Best of luck!
soth12

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Great comment Soth. Thanks
Saul

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Here is a post on another board about SZYM.

$285 million in cash sounds great until you notice that the company has borrowed $207 million. So, cash burn by the end of this year will be on borrowed money – not issued share cash. It will be difficult to borrow more money, or issue shares are a reasonable price, when you have a debt level that is that big in a yet to be proven technology. It is the debt, in my opinion, that has the shorts excited.

…

An early mover advantage is in SZYM’s favor. Being first allows you to borrow $207 million in first place. High tech start-ups usually sell stock and keep debt off their balance sheet. SZYM’s debt means that they have resisted growing the share count. If the company becomes profitable, that means earning will be spread over a lot fewer shares. Why buy back shares? Just don’t issue them and use debt to build future value.

…

I have been on the sidelines for the entire time this company has been public. I think the shorts feel that falling oil prices will reduce the sales prices SZYM will get for their lubricant products. At today’s stock price, issuing shares will be very unproductive for shareholders. With all the delays and management forecasting errors, borrowing money is probably out of the question until Moema hits full stride. It’s a Catch 22 that shorts understand.

I look at SZYM much differently than I did months ago. At $6.94 a share, the company’s market capitalization is around $550 million. If the Foolish article is correct about sales in 2016, the company is selling for less than 1-times sales for a radical new technology with high margin potential. Now that’s cheap especially if operating margins are positive in late 2015 when Moema reaches nameplate capacity (as I expect).

The shorts are certainly focused on the price of oil. That is the correct place to look for final product prices. But, profits are also based on input costs. Corn prices just broke 5-year lows and sugar is close to a 5-year low.

…

The big news here, from the start, has been the partners. You do not get that list of business associates, and get full-scale manufacturing out of the ground, without expecting success based on real market realities. Risk is reduced because the partner can help sell the output – something stand-alone start-ups have a problem doing. Risk is also reduced because these partners are in many different fields and these products will offer purity levels unavailable before. It is a combination that makes me wonder if Alyce is thinking about recommending this company again?

The company is expected to announce earnings the week of November 3rd. I see no reason to rush into the stock now with the Russell 2000 getting so much press about weak small technology company prices. I am going to wait until the week before earnings before deciding if I will buy this year. If I do, I’ll buy a small position with the intent of ramping up share purchases if the stock declines or SZYM finally hits stride in manufacturing. I see a multibagger in the making here.

http://discussion.fool.com/a-take-on-solazyme-31445142.aspx

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I found out about SZYM just several months ago and am incredibly interested in their technology. Been waiting for the slide to stop for an entry point to dip my toe in the water. I plan to monitor their reports on ramping up to nameplate capacity.

As a bonus, they have a small facility in my hometown.

I’m fascinated by the breadth of potential applications for their products. The markets are enormous. Production and profitability remain a question mark and they are facing competition with vast resources in many cases so I will be cautious.

SZYM is very interesting indeed.

AJ

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Could not help myself this morning. I bought another slice of SZYM.