SunEdison: Better Sell Than Sorry

Summary

SUNE TBVPS have remained negative for over a year, the only thing that has changed now is that they might actually file for a Chapter 11 in the next few weeks

Even SUNE survive this time around, their revenue has dropped to a level where it would take them decades to pay back the $11+ billions of debts that they already have

Our advice is that each investor should analyze their own unique situation and take the decision accordingly

Company Overview

SunEdison Inc (NYSE:SUNE) can trace its roots back to 1959, when it was first founded as the Monsanto Electronic Materials Company that mostly produced silicon-wafer. Back then it was a business unit of the Monsanto Company. In 1989, Monsanto Company sold the company and since then, it operated as the MEMC Electronic Materials. At the end of 2009, they acquired SunEdison LLC and from June 2013, MEMC rebranded the company as SunEdison Inc to reflect its focus on producing solar energy.

SunEdison Inc is currently involved in developing photovoltaic energy solutions, providing clean energy solutions, and producing silicon wafers. SunEdison Inc is mainly focused on developing solar energy products, but also operates two other segments: TerraForm Power, which operates clean power generation services, and SunEdison Semiconductor, which is involved in producing semiconductor materials.

Although SunEdison Inc claims on its investor’s portal that they are the “largest global renewable energy development company,” as of April 8, they only had a market capitalization of $159 million.

SunEdison:  The Story of a Fallen Star

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Figure 1: SunEdison Inc’s Stock Price Has Declined 98.6% In Less Than Twelve Months

On July 17, 2015, the stock price of SunEdison Inc was trading at $31.56 per share, and as of April 8, 2016, it is trading at $0.40 per share, representing a 98.6% decline within less than a year.

The solar energy in the United States grew 12 times faster than the rest of the economy in 2015, and one of its top players, SunEdison Inc, has managed to shrink its market capitalization by over 98%. That’s one of the weirdest stories in the solar industry right now.

One analyst went out of his way to compare SunEdison Inc to the Greek myth of Icarus. Like Icarus, SunEdison Inc “flew too close to the sun,” said Tyler Crowe.

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Figure 2: Sharp Divergence Between SunEdison Inc’s quarterly Cash from Operation and Stock Price.

In figure 2, we can see how SunEdison Inc’s cash from operations diverged with its stock price. Sooner or later, both had to cross roads. However, even we did not expect the stock price to go as low as $0.19, an all-time low, since the company fully focused on being a solar energy company in the middle of 2013.

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Figure 3: At the End of 2015, SunEdison Inc’s Financial Debt Reached $11.67 Billion

The story of SunEdison Inc is a classic case of taking on too much debt to expand fast. In the end, when their operation could not generate an ample cash flow to support such high level of debt, finally the stock price plummeted.

The Rumors of Bankruptcy May Turn Out to be True

On April 1, The Wall Street Journal ran an article indicating that SunEdison Inc might be preparing to declare a chapter 11 bankruptcy, which they thought “would rank among largest financial collapses in recent years.” Too bad for SunEdison Inc that it was not an April Fool’s day joke.

This article was one of the main catalysts behind pushing the stock price to the record low levels. However, since then covering short positions have pushed the stock price higher, and now its trading almost double of its 52-week low.

The WSJ article made some good points and we are not going to bore readers with any more points that they have already known about this company for last few years. The thing is that there is a very good possibility that SunEdison Inc management will end up filing a Chapter 11.

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Figure 4: Price to Tangible Book Value of SunEdison Inc is Currently Negative

Tangible book value per share of SunEdison Inc is currently -$0.19, which means if they do file a Chapter 11, investors will practically get nothing for their shares.

There has been some discussion that SunEdison Inc management is playing a strategic game and keeping the stock price down, but if you look at the real numbers, rumors of those so called “strategic” moves will disappear in thin air.

However, we would like to remind investors that the TBVPS of SunEdison Inc has remained in the negative territory for over a year. The situation has only improved since then, it is actually trading lot closer to 0 now than a year ago!

Without the factor of a possible bankruptcy, nothing actually changed over the last year. Investors were already holding stocks of a company that had a negative TBVPS for a long time.

Our Advice

We hope that as an investor, your exposure to SunEdison Inc was part of a portfolio and if they do go under, the total loss would represent only a fraction of your total portfolio.

If that is true, then selling the stock at this point would not really save you a lot of money in terms of percentage of your net worth and you should continue to hold on to your stocks and hope for the best.

However, if the stocks of SunEdison Inc represent a large portion of your total investment portfolio, you should not waste a single more day and try to get out of this company at once. We have read a few comments on various portals regarding how investors are taking large losses like $30,000 to $100,000 with SunEdison Inc, and trust us, regardless how painful it sounds, you should take the loss and get out now. At this point, this would be a larger gamble to wait.

Conclusion

Regardless of the fact that SunEdison Inc files for bankruptcy or not, its stock price is not going to get much higher anytime soon. Their quarterly revenue has fallen back to below $500 million and it would take them years, if not decades, to pay back the amount of debt they have on book from profits even if they survive this time around.

Each individual investor should assess their own situation and take the decision accordingly. Remember, there would be no right or wrong answers, there is only the right answer for your own situation. We have outlined a possible guideline for how you should play this, and we hope it would help you find the answer. Best of luck.