SunEdison Inc (SUNE): The Real Reason the Bears Are Growling

Massive short positions? Hedge fund conspiracies? No. Sometimes, we just owe investors a warning when a stock goes nuclear.

SunEdison SUNE stock

Source: Wikimedia (Modified)

There’s a saying for anyone still clinging on to shares in SunEdison Inc (SUNE): easy come, easy go.

One day SUNE is soaring because the company gives itself a pass in an accounting investigation. The next day it’s cratering because the company is looking for bankruptcy financing.

You don’t get closer to actually filing for Chapter 11 than this, and bankruptcy will wipe SunEdison shareholders out.

No one takes any pleasure in this. We have no skin in this game, long or short. It’s flattering if you think so, but we don’t move markets or share prices, — nor do we want to.

It’s our job to help investors. Sometimes that’s by telling them not to do stupid things. And if we get overemotional or bombastic on occasion, it’s for the same reason Mom and Dad chewed you out for playing in traffic. “Do you actually want to get run over?”

Anytime something like SUNE stock goes into an apparent death spiral, yes, there’s the potential for huge upside if the worst does not, indeed, come to pass. But that’s only because the odds of it happening are so remote.

And, yes, once a name like SunEdison becomes a penny stock — and a highly volatile, highly liquid one at that — it’s perfect for high-speed trading.

But neither of those is a good reason to own shares.

Holding a beaten-down stock in hopes of a rebound may be a legitimate trade. But it’s a low-probability bet, and you should probably have a more cogent investment thesis than bro-shouting “long and strong!”

By the same token, if you’re just trying to day trade every little price movement, you shouldn’t care if SUNE stock goes up or down. The high-frequency algo-bots sure don’t.

The Smart Money Sold SunEdison (SUNE) Long Ago

Real investors — we’re talking about professionals here, giant mutual fund managers and the like — knew something was wrong with SunEdison nine months ago. Last summer, SUNE stock was trading north of $32 share. The company was worth $10 billion. But then the market started to sense that something was amiss.

Here’s a quick sketch of the warning signs:

  • SunEdison went an acquisition too far. Investors revolted when SUNE tried to buy Vivint Solar Inc. (VSLR). Vivint wasn’t really in SunEdison’s wheelhouse, and the company was already saddled with debt. (The aborted deal would also lead to the current investigation into accounting practices.)
  • Oil prices continued to tumble, making alternative energy less attractive to investors.
  • A slightly more hawkish view from the Federal Reserve on interest rates made yieldcos like SUNE’s TerraForm Power Inc (TERP) less attractive to income investors. The IPO for SunEdison’s second yieldco, TerraForm Global Inc (GLBL), was a flop.
  • By mid-August SUNE stock had lost 70% of its value in a month. (It has since gone on to lose 98%)
  • The Securities and Exchange Commission and Department of Justice initiated investigations into the company’s accounting practices.
  • SUNE stock fell below a buck a share.

If all that’s not enough to make you cut your losses, what is? The rest of the market certainly got the hint.

This isn’t about trying to game Wall Street. This is about trying to make sure that investors are informed about a stock that looks enticing based on its face price but is almost certainly going to implode.

Here’s all you need to know about SUNE anymore: SunEdison is working on a financing deal in order enter bankruptcy protection. It said so explicitly today in a regulatory filing. And when a company hits Chapter 11, shareholders get wiped out.

Hey, we’re just trying to help.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities — and hasn’t this whole time.

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