If someone wants to know what volatility looks like in the stock market, all you need to do is show them SunEdison Inc’s (NYSE:SUNE) stock chart. In the last three months, SunEdison stock went from approximately $3.50 to as high as $6.77 and touched as low as $1.38 per share.
But just as you thought that the company was over, SunEdison stock shot up 20% on Tuesday, February 16. What is happening here? Is there any good news or is it just a dead cat bounce?
Before we move on to the present, let’s have a quick recap of what has happened in the past with this stock.
As one of the largest renewable companies in the world, all was looking well for SunEdison—until July 2015. Since then, SunEdison’s stock price has plunged from more than $30.00 a share to less than $2.00, wiping out 95% of its market value.
Even the slew of good news for the renewable energy industry wasn’t able to put a bottom under SUNE stock. Results from the Climate Change Conference in Paris showed encouraging signs for wind and solar energy adoption. The U.S. government also extended the 30% federal tax credit for those who install renewable energy systems in their homes and offices.
That would be great news for SunEdison right?
Well, not for long. SunEdison’s stock price managed to climb to $6.77 on the news, but things went south rather quickly. When a five-percent decline looks like a normal day, you know things are looking bad.
So, is there a chance that SUNE stock could climb back up?
The short answer: yes, it’s possible.
SUNE Stock: A Possible Turnaround?
One of the reasons why SunEdison suddenly became unattractive was the company’s fast accumulation of debt. By the third quarter of 2015, SunEdison’s total debt outstanding was $11.7 billion, up 84% from a year earlier. (Source: “SunEdison Reports Third Quarter 2015 Results,” SunEdison Inc, November 10, 2015.)
Note that while SunEdison’s debt went higher, its debt-to-equity ratio actually declined. Back in 2013, the company’s debt-to-equity ratio was at 1,048.12%. By 2015, the ratio went down to 259.15%. (Source: “SunEdison Inc: Can David Einhorn Turn Things Around?” BidnessETC, January 25, 2016.)
The company is also trying to improve its balance sheet. In December, it announced that it would extinguish $336 million of exchangeable notes due 2020. In exchange, holders of the debt would get equity in some projects and shares in one of SunEdison’s holding companies. (Source: “SunEdison Announces Agreement to Extinguish $336 Million of 2020 Exchangeable Notes,” SunEdison Inc, December 30, 2015.)
Of course, this won’t be enough to make SUNE stock appealing again. But what if several hedge funds are loading up on shares of the company?
According to a report from Reuters, Visium Asset Management bought 1.3 million shares of SUNE stock in the fourth quarter of 2015, while Sand Grove Capital bought 272,000 shares. Moreover, Adage Capital Partners added 9.2 million shares of SunEdison to own a total of 17 million shares. (Source: “Hedge Funds Pile into SunEdison Shares Ahead of Plunge,” Reuters, February 16, 2016.)
The hedge fund that could really change SunEdison’s outlook is perhaps David Einhorn’s Greenlight Capital. Einhorn has a 6.8% stake in the company and was pushing to get a board set. Last month, SunEdison finally agreed. The company has appointed Claire Gogel, a former partner at Einhorn’s Greenlight Capital, as an independent director. (Source: “SunEdison and Greenlight Capital Agree to Corporate Governance Initiatives,” SunEdison Inc, January 27, 2016.)
Changes are already happening since Einhorn got involved. SunEdison announced that the company will not issue any new equity without a supermajority vote of the board of directors. This is great for SunEdison’s shareholders because the agreement could limit potential dilution of the company’s shares.
The Bottom Line on SUNE Stock
Right now, there is still a lot of uncertainty surrounding SUNE stock. Its pending acquisition of Vivint Solar Inc (NYSE:VSLR) could continue to weigh on SunEdison’s outlook.
However, it’s safe to say that the company is far from over.