Hi all,I'm not on the same page with you on ethanol and PEIX's future, with my reasoning and analysis below. Pacific EthanolMarket Cap: $568.78M (what investors are valuing it at)Okay, so Pacific Ethanol has once been valued quite a bit above $1 billion, but I think they are still extremely overvalued. Investors are valuing them at $568 million when:~ They have only $48,185 million in assets (priced very highly above assets)~ They lost nearly $10 million in 2005, declining from a positive $1.2 million in in 2002~ The company sold just under $20 million of stock (This is the only place they are getting money from right now)~ They have a profit margin of -4.64%, operating margin of -5.09%, ROA of -2.95%, and an ROE of -4.69% (this means they aren't managing money well, aren't keeping costs down, and they are racking up debt fast)~ Liabilities have rocketed from $1.2 million in 2002 to $19.669 million in 2005Do I really need to go any further into this? PEIX has almost nothing behind its valuation, and it is being valued highly with negative margins, rapidly increasing liabilities, selling a good amount of stock, and the most important thing of all: They are losing more and more money every year, even with revenue increasing so much, because they have a product that costs a ton to produce. Is there still interest in the company because Bill Gates invested $70 million or so into it? Well, first things first, just Bill Gates has gone into it doesn't mean it is a good investment; and second, I just thought I'd mention that if that $70 million investment were to go to zero, he'd lose only a little more than 1% of his net worth. So, it'd be similar to me putting $40 or so into PEIX and seeing it go to zero. All I'm saying is that Bill Gates isn't that great of a reason to invest in PEIX (analysts have been giving it out as a reason to). Anyway, I really don't see how they are not overvalued. The ethanol market is way too overhyped, you can tell this by the increasing amounts of IPOs from little, unexperienced companies (sign of confidence, which isn't a good long-term sign, see http://www.bloggingstocks.com/2006/07/28/the-ipo-situation/), because they know they can make some quick money from investors who don't look at the facts. Ethanol, particularly E85, is overwhelmingly overhyped, because there is no way corn can solve our energy problems. Right now, pretty much all types of ethanol are too expensive to produce and be profitable with it, but people haven't realized it yet. Something worth mentioning is that Consumer Reports did a report on E85 in their latest issue, and they clearly showed why ethanol costs more to fill up with (its MPG is much, much worse than gasoline's, making it more expensive when you add it up), and they also noted that there is barely enough corn in the U.S. to make up the demand for E10. Look at the facts, and you'll notice this is a different company than people are making it out to be. So, there you have it. I haven't seen any good, legit reasons with facts to know why PEIX should be around in 5-10 years, but I'd be happy to hear the views of others. And don't get me wrong, I think the alternative energy push is a good one, but with ethanol, too much is being put into something that will give too little in return, and that's where my view is coming from. I think this first breed of companies will suffer in the long-term, but over the next 20-30 years I think this could become an industry with something behind, just not with these companies. Best,David K
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