There's a great deal to like about geothermal energy producer Fervo Energy (FRVO), including its large “potential backlog,” the fact that major tech and other energy companies have made deals with the firm, and its innovative technology. Most recently on the latter front, the firm disclosed significant improvement in its drilling rates.
Still, given the company's enormous valuation, a meaningful logistical hurdle that it's reportedly facing, and the weakness of FRVO stock in recent weeks, the shares appear to be too risky to hold at this point. Also worth considering, as I've pointed out in a number of articles, is the fact that the Street often is very bullish on new technologies in their early days and then subsequently sours a great deal on them. In fact, Fervo may already be undergoing this process.
Don’t Miss a Day: From crude oil to coffee, sign up free for Barchart’s best-in-class commodity analysis.
About Fervo Energy
The firm has developed “enhanced geothermal systems” and seeks to deliver “utility-scale power.” In 2025, it generated just $138,000 of revenue, while its market capitalization is nearly $8 billion.
www.barchart.com The Positives of Fervo Energy
The company has a huge “potential backlog” of $7.2 billion, and it has made power purchase agreements with a number of corporate heavyweights, including Alphabet (GOOG) (GOOGL), Shell (SHEL), and Southern California Edison, while Bill Gates and Alphabet are among its investors. A fairly large fossil-fuels exploration and development company, Devon Energy (DVN), has also invested in Fervo.
On the technology front, Fervo utilizes innovative “horizontal drilling and hydraulic fracturing techniques similar to what drove the shale revolution,” Politico reported. Further, on July 9, Fervo reported that it had improved its “drilling rates” by 143%. This accomplishment can help the firm attain its goal of lowering the cost of its first geothermal plant from a projected $5,500 per kilowatt to $3,000 per kilowatt in the long term.
Analysts are also tentatively positive on FRVO stock with a “Moderate Buy” consensus rating and an average price target that's about 70% higher than its current price.
www.barchart.com The Negatives of Fervo Energy
FRVO stock has a market capitalization of nearly $8 billion, even though analysts on average expect its revenue to come in at just $7.16 million this year and only $80 million in 2027. Even based on the 2027 figure, its price-sales ratio comes in at a gargantuan total of almost 100 times. Further, investment bank Jefferies has warned that the launch of the company's energy systems could be delayed by electricity “transmission constraints” at “most (of its sites).”
Finally, in the last month, FRVO stock has tumbled 22%. In the past, I've noted that sometimes the shares of companies that have developed new technologies rise tremendously, only to subsequently tumble sharply. Among the energy companies that have undergone this phenomenon in the last 15 years are many solar energy producers, FuelCell Energy (FCEL), and Gevo (GEVO).
On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
Despite Multiple, Positive Attributes, Fervo Energy Stock Looks Very Risky for Now Why Did the Commodity Complex Remind Me of the Bangles to Start the Week? A $225 Million Reason to Sell FuelCell Energy Stock Now Is it Time to Put Natural Gas on Your Radar?