Solazyme: In The Wrong Place At The Wrong Time

We recommend investors not to take any position in Solazyme (SZYM) due to its continuous deteriorating profitability, lack of product commercialization, operational inefficiencies and inability to bring growth. Its business model of producing oil through transformation of food, plants and animal fats is a matter of concern for investors. The company's lack of SKUs in its skin care segment, limited distribution network and heavy third party dependence will render its revenue contribution stagnant going forward. Solazyme's financial problems, its inability to design a worthwhile manufacturing facility, and the delay in regulatory approval for the sale of microalgae would trouble the company further.

The stock is currently trading at a price to sales of 11.95x -- a significant premium when compared to the industry average of 3.1x. According to the sell side analyst estimates, its next quarter earnings will decrease by 29%. Analysts estimate that the company's loss will increase further to $1.2 per share by the end of 2013. For all the reasons listed above, we recommend investors avoid taking any position in the stock. Read more