To say that SunEdison (SUNE) is having a rough time in the markets is to suggest that the Commodore 64 is incompatible with modern technology. SUNE stock is down more than 27% year-to-date, and the majority of the devastation occurred within the past 30 days. And since July 20, Sunedison’s market value was eviscerated by 56%.
Making matters worse, SUNE stock’s earnings results for the second quarter of fiscal year 2015 — released on Aug. 6 — were well-short of expectations, contributing to a 25% drop on the day of disclosure.
At 93 cents, SunEdison’s GAAP-adjusted loss per share was substantially lower than the forecasted loss of 45 cents, resulting in a negative surprise of 69%. The primary culprit? Rising costs; particularly in financing charges, marketing and administrative expenditures. Truly, managing expenses have been a long-term struggle for SunEdison.
SUNE’s investments toward padding out its top line are producing negative operating margins. And SUNE stock faithfuls have to contend with the fact that SunEdison’s current long-term debt levels exceed shareholder’s equity by over 1300%.
Trading activity, on the other hand, has historically not been bothered by SUNE stock’s volatility. Over the past 13 earnings report, not inclusive of the recent Q2 FY2015 report, Sunedison has produced mixed results of six beats and seven misses. Of the times when the company outperformed expectations, SUNE stock has gained an average of 12.6% in the month following earnings release.
When SunEdison underperforms, SUNE stock still manages 11.8% returns in the markets over the same time frame. While the benefits of long-term investment is highly debatable, shorter-term trading of SUNE stock has been quite lucrative.
Click to Enlarge
Interestingly, as SunEdison suffers further calamity, its shares have a higher probability of favoring the bulls over the bears. When SUNE stock suffers a 15% loss or greater on a single day, its market value increases 59% of the time a month later. When shares suffer a 20% loss or greater, the bulls are further rewarded with a 61.5% probability of success.
But the dangers of speculating on SunEdison’s misfortunes in the markets are very real.
Of the times when SUNE stock incurred a one-day drop of 10% or greater and failed to move higher a month later, average losses totaled 18.6%. However, when SUNE stock declines 20% or more, the one-month return risk is little changed at 19.3%, yet the reward for getting it right is nearly 40%.
Such stats are difficult for traders to ignore and it would not be totally out of the question to see SUNE stock recover huge chunks of change by Labor Day weekend.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
