My favorite stock idea is Greenlane Renewables Inc (TSE:GRN) (OTCMKTS:GRNWF), with a current market capitalization of approximately $ 270 million. Currently, I do not personally own this stock, but I plan to buy it. The Canadian company was founded in 1986 and is a global market leader for biogas upgrading systems. Greenlane’s advanced and reliable systems produce clean, low-carbon, natural gas-quality biogas from organic waste sources, such as landfills, wastewater treatment plants, dairy farms, and food waste, suitable for either injection into the natural gas grid or direct use as vehicle fuel. Greenlane is the only company to offer the three leading biogas upgrading technologies (pressure swing adsorption, physical scrubbing, and the membrane process). Greenlane’s business model is built for scalability and global reach. 14 patents and 28 device titles protect the company’s intellectual property.
Renewable natural gas (RNG) accounts for about 0.3 percent of the North American natural gas distribution network. Industry forecasts predict significant market growth of at least 30 percent p.a. for renewable natural gas and biogas processing technologies in North America and Europe over the next five years. A conservative estimate of 5.0 percent RNG content in the North American natural gas distribution system would represent a market opportunity of approximately $18 billion in new biogas upgrading plants and $27 billion in annual RNG sales.
Investors might be overlooking Greenlane Renewables’ share, which could be due to insufficient knowledge of the market opportunities. The recent market seems relatively small in comparison to other industries. However, the stated market growth is significant and utilized by Greenlane and other competitors. For instance, the most valuable one Xebec Adsorption has made spectacular progress in recent years, which could serve as a blueprint for the share price development of Greenlane, which only went public in June 2019. Xebec is now worth around $ 640 million, while Greenlane Renewables stands at $ 270 million. On November 28, 2019, Beacon Securities analyst Ahmad Shaath wrote that Greenlane was in a similar position to Xebec twelve months ago before reporting large orders. On January 6, 2020, the analyst added that they believed Greenlane could develop faster than Xebec, as evidenced by Greenlane’s ability to win larger contracts earlier than expected.
The Company’s Growth In Q4 2020
Furthermore, the financial results of the fourth quarter and the fiscal year 2020 validate the company’s growth. In the fourth quarter, Greenlane Renewables achieved record revenue of $ 8.8 million. This indicates an increase of 167% over the $ 3.3 million in the fourth quarter of 2019. On top, the company achieved a gross margin of $ 2.4 million, which accounts for a notable 27% of the revenue. Moreover, Greenlane had a positive adjusted EBITDA of $ 0.2 million. Additionally, the sales pipeline on December 31, 2020, was valued at $ 720 million compared to $ 680 million a year ago.
The financial results of the whole fiscal year state a similarly positive development. Greenlane Renewables achieved record revenue of $ 22.5 million. This is an increase of 147% compared to the revenue in 2019. The revenue growth was influenced by the acquisition of PT Biogas in June 2019. The gross margin was $ 6.4 million, which represents 29% of the revenue. However, the adjusted EBITDA loss was $ 1.7 million.
Another advancement of the business model was attained by signing the definitive joint venture agreement with SWEN Impact Fund for Transition. This allows Greenlane to offer “Upgrading-as-a-Service” to developers and owners of European RNG projects by providing prospects the option to replace the initial capital outlay for the biogas upgrading equipment with a monthly fee under a long-term contract.
Conclusion
In conclusion, I prefer this long-term stock idea for the following reasons. First, forecasts state that the market will be growing steadily over the years. This is a huge catalyst for Greenlane Renewables’ growth. In my opinion, the future value of Greenlane is not sufficiently represented in its market capitalization because of the underestimation of the market it operates in. Second, the financial results include steady revenue growth, high margins, and an increasing sales pipeline. Third, the partnership with SWEN Impact Fund for Transition will allow Greenlane to grow in the European market. Last, the competitor Xebec showed that excellent performance in this market is possible, and Greenlane has the resources needed to emulate this progress.
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