Shares of SunEdison (SUNE, Financial) have been absolutely hammered in the last few months as the stock has fallen from over $30 to under $3. SunEdison’s downward trajectory is surprising, but the company’s worst days may be over now. The stock is currently trading near multiyear lows, and the volatile nature of the stock makes it very risky. That being said, SunEdison is taking steps in the right direction and is growing at a brisk pace.
The company delivered record 640 MW in Q3 and believes it will do even better in Q4 and throughout 2016. Altogether, the company’s lofty growth plans have used a lot of funds, but once the company stops growing at such a hasty speed, the cash-producing assets dominate over the operating cash. SunEdison has recorded strong growth for years, almost doubling revenue annually. And by 2017, SunEdison could be generating more than $700 million every year merely from its reserved projects.
Speedy growth has put a lot of debt burden on the company. SunEdison is a highly leveraged company; although it is still growing, it is reporting consistent losses. The company’s debt has increased consistently and so has its interest expense.
The company needs to turn profitable to consider it a buy. However, analysts are expecting the company to continue reporting losses, which is why investors should stay away from SunEdison.
Break up with Vivint Solar
SunEdison’s stock peaked and began its intense downfall after the acquisition of Vivint Solar (VSLR, Financial). The company’s acquisition of Vivint Solar was a disaster from the word go. SunEdison’s separation from Vivint Solar could give the market assurance that SunEdison is determined about getting back on track to build utility-scale projects and dealing them for a yield, or keeping them long term. Vivint Solar is not suitable for that model, as it is a housing solar developer. It will be better for both the companies to be separated from a functioning standpoint.
One another problem for the company may be financing the acquisition. SunEdison’s yieldco, TerraForm Power (TERP, Financial), was alleged to pay $922 million in cash for Vivint Solar’s 523 MW range of solar properties, but it became almost impossible due to the declining stock price.
The company’s management needs to back out of the deal to get SunEdison back on track, as the acquisition of Vivint Solar didn’t prove to be a vigorous decision.
Conclusion
SunEdison is a very risky stock to buy right now. Although the stock could move a lot higher if it delivers on a few fronts going forward, its high debt is a big headwind. Thus, investors should not bet on a turnaround –Â and wait for a better entry point in the future.
