SunEdison Inc: SUNE Isn’t an Investment, It’s a ‘Flip’

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It’s not unusual for a stock to fall on a piece of bad news, only to rebound sharply by the day’s end. A small-percentage move in either direction is normal, but 20%-plus swings in both directions? Not so normal. But that’s the sort of craziness SunEdison Inc (SUNE) stock holders have come to expect, as SUNE has become a trader’s paradise.

SunEdison Inc: SUNE Isn't an Investment, It's a 'Flip'And the latest piece of bad news that was suddenly forgotten by the market highlights just how much of a trader’s stock SunEdison has become.

SunEdison isn’t about investing, it’s about flipping.

For regular buy-and-hold investors, SUNE stock isn’t a place where you should tread.

SunEdison’s Major Problem

SunEdison’s problems started months ago when it took on “too much to buy too little” in the way of Vivint Solar Inc (VSLR). The debt weight of that deal and the potentially poor quality of assets caused all sorts of headaches.

Soon, lawsuits from shareholders at its yieldco, TerraForm Power Inc (TERP), came pouring in, and the market wondered if the weight of that debt would push SUNE into bankruptcy. This pushed shares of the solar stock down to single digits. And since several hedge funds were already involved in SUNE stock — David Einhorn’s Greenlight Capital, for one — it’s become one of the easiest stocks to “flip.”

This brings us to Wednesday’s announcement.

In early March, SUNE reported that it would delay its 2015 earnings report due to an internal investigation brought forth by claims of a former and a current employee on the accuracy of the company’s financial disclosures. The claims question the liquidity of SunEdison and prompted an investigation into the “accuracy of (SunEdison’s) anticipated financial position.” SUNE planned to take 15 days to investigate and fix any problems before releasing its earnings report.

Fifteen days later, instead of being greeted with an earnings report, investors were met with another cryptic message about audit controls. SUNE would again delay the filing of its annual report, thanks in part to discoveries of “material weaknesses in its internal controls over financial reporting.” (Keep in mind that the previously disclosed investigation by the SunEdison at the beginning of March hasn’t actually been completed. This is a new and separate audit problem.)

Meanwhile, VSLR cut and run as SUNE — whose lenders are now skittish and haven’t handed over the money for the deal — failed to pay. Vivint sued SunEdison for damages, and thanks to the “ironclad” agreement, VSLR has a pretty good case.

None of this stuff is good for SunEdison, but the second filing delay — which SunEdison didn’t give a date for — is especially crippling. It’s no wonder why the stock tanked so hard on the news.

What’s crazy is that SUNE rebounded all the losses for the day.

SUNE Doesn’t Make Any Sense

Nothing particularly changed for the better; there was no good news to counteract the bad and this wasn’t a case of overreaction by the markets. The rebound doesn’t make sense, especially considering that the end game in all of this could very well be bankruptcy.

A likely explanation for this would be shorts closing positions and heavy hedge fund/trader activity. Volume spikes throughout the day show some pretty big candlesticks when the stock had several big moves in price.

That’s trading activity, which is what SUNE has become. A trade. While SunEdison certainly has been battered, it’s not exactly a value stock at this point. And thus, while it may be tempting to load up on SunEdison stock given just how far it’s fallen, it might not be a good idea.

Rationality has left the SUNE station a long time ago: Debt remains high, big-time lawsuits loom and recent accounting issues only throw gasoline of the fire.

The hefty and continued price swings show just how much of a trade and hedge fund playground SUNE has become.

For investors, there are far better solar stocks offering plenty of growth without the headaches that come with SunEdison.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/sunedison-sune-stock-trading/.

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