The Proof in Ceres’ Pudding

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by Debra Fiakas CFA

Cereslgo[1].jpgJudging by stock prices, investors have decided Ceres, Inc. (CERE:  Nasdaq) is the favorite horse in the cellulosic ethanol race  –  at least among those that have publicly traded stocks.  Ceres develops and sells sorghum, switch grass and miscanthus seeds to feedstock growers that supply cellulosic ethanol mills. The stock is selling for a buck and change, which is far more impressive that the stocks of most companies that could be included in the “cellulosic biofuel” sector.

Ceres announced fiscal second quarter 2014 results at the beginning of this month.  The company cited sorghum plantings this season for forty-nine customers in Brazil.  That sounds impressive, but most of the plantings are for sampling and testing so that mills can evaluate potential yield.  It is not like Ceres has not been testing its sorghum.  The company used a grant from the Department of Energy to test various plant traits.  Ceres has done so well with its plant trait development it was able to get a U.S. patent for a sorghum-derived gene promoter.

Ceres reported $4.0 million in total sales over the last twelve months.  Profits are still on management’s wish list.  The company is still using cash to support operations  –  $5.7 million in the November 2013 quarter.  The good news is that the cash burn rate has been brought down to from a run rate near $28 million in fiscal year 2013 to $23 million per year.   Management has undertaken some cost cutting measures that appear to be yielding results.

The proof is always in the pudding.  For Ceres the pudding is in forty-nine sorghum field trials in Brazil.  Orders from any one of those Brazil mills is a solid endorsement for Ceres and provides a compelling support for the value of the company’s new patent.
Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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