SunEdison (SUNE) shares have been in such a downward spiral that one of the solar stock’s staunchest supporters is starting to abandon ship.
David Einhorn, founder of Greenlight Capital hedge fund, and one of Wall Street’s most influential investors, significantly reduced his stake in SUNE stock last quarter, cutting his firm’s SUNE position by 25%, selling more than 6.2 million shares.
It’s easy to see why: Since July 20, the stock has fallen 90%, from $31 to $3. SUNE’s precipitous drop is a total about-face from the previous 18 months, when the stock vaulted from $13 to as high as $32 — the exact value Einhorn predicted SUNE stock would reach when it was trading at $19 in 2014.
And Einhorn isn’t the only one reducing his exposure to SunEdison stock. Glenview Capital Management, Lone Point Capital, Omega Advisors and Third Point, LLC also sold stakes in SUNE in the third quarter.
Weak Sales Behind SUNE Slump
Slowing revenue growth and deepening losses were the root cause behind all the SunEdison selling. SUNE’s per share earnings losses are on pace for a third straight year of decline, while sales have yet to return to their 2011 peak ($2.72 billion).
Interest expenses resulting from higher debt and an increase in general and administration costs have weighed heavily on the renewable energy company’s top and bottom lines.
The added debt stems from a July acquisition of Vivint Solar (VSLR), pushing SUNE’s debt load up from $9.17 billion to $9.77 billion in the third quarter.
Despite the mass selloff from some of Wall Street’s most prominent institutional investors, many of them are still holding onto pretty sizable stakes in SUNE for a stock that lost 90% of its value in four months. Even Einhorn’s Greenlight Capital still holds more than 18 million shares.
As recently as last month, Einhorn reiterated his faith in SUNE, saying he saw “potential for a significant recovery in the stock price.” At the time, SUNE was trading at $8.33. It has tumbled another 64% in the three weeks since.
So it begs the question: If all these big hedge funders are still holding out hope for SUNE stock, should you?
In a word: No. Unprofitable companies with lots of promise can make for good investments — but not unprofitable companies with mounting losses, massive debt loads and sales that have been stuck in the mud for four years.
Even at $3 a share, SUNE isn’t worth the investment.
Alternatives to SUNE Stock
Solar energy is certainly a growth industry, with America’s solar capacity expected to double in the next two years. Installations have more than doubled in the last three years. But SUNE in in a rough place right now, both financially and on Wall Street.
Better ways to play the solar energy surge are First Solar (FSLR), up 19% year-to-date, and Trina Solar Limited (TSL), up 4% in 2015. Each of those companies boasts double-digit sales growth and triple-digit earnings growth.
SUNE may have been a hedge fund darling at one point. But it appears, for the time being at least, the sun has set on SunEdison stock.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.