Wednesday, June 29, 2022

Sunedison Inc (OTCMKTS:SUNEQ) Equity Holders Left Holding the Bag

Sunedison Inc (OTCMKTS:SUNEQ) shares have traded up big-time over the past month. In fact, back in the beginning of October, shares were trading at a low of $0.05/share. At the peak only a few days ago, the company touched $0.35/share and having finally settled down at ~$0.20/share the last closing day.

Going back to basic finance, we know some things are certain. Equity holders will not receive a drop of value until all creditors, bondholders, preferred holders and any other tranche above equity is paid.

Sunedison Inc (OTCMKTS:SUNEQ) equity holders then have almost a 99.99% chance of being dubbed worthless. So why would the company trade upwards – giving the investors/traders who bought at $0.05/share a handsome return in a months’ time?

First, there is the mind of the market. If the stock is worthless, people will question; why is the company selling for $0.05/share if it is truly worthless. Furthermore, once the stock appreciates to high levels it has seen in the most recent days, the belief that the equity is worth something becomes more true than when the equity was valued at $0.05/share. Effectively, potential buyers are stating; if people are buying then they must know something I don’t know? These questioning investors/traders then become buyers and the circle continues.

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Secondly, when chapter eleven companies release any indication of positive news – not matter how minuscule, investors and traders typically take that news and run with it. A few noteworthy news announcements in the most recent days regarding the Chapter 11 company were; SunEdison seeking more time to reorganize in bankruptcy, D.E. Shaw replacing SunEdison as TerraForm power sponsor, creditors suing to undo the sweetheart deal to lenders, SEC investigation and a restructuring to include the TerraForm stake. When news is released, prices typically spike – bringing on more people who see prices rising and buying blindly. This leads us to our third point, greed.

If basic economics has taught us anything it’s that there is no such thing as a free lunch. When it comes to investing, basic economics has the tendency to be thrown out the window – especially when everyone else is making a killing and you’re not.

Everyone wants a ten-bagger, a 20-bagger a 50-bagger and the almost untouchable yet so close, 100-bagger. In order to get outstanding returns, an investor needs to do their homework and a lot of it. Doing homework on a particular issue isn’t a day’s task or a week’s task. Knowing what you own and why you own it takes months to understand and hours upon hours of work. The thing with really volatile issues such as bankrupt companies; it seems the less homework people tend to do.

When a stock goes from $0.05/share to $0.35/share in a months’ time, people get greedy. They see everyone else making money and want in. This has the tendency to push a stock price upwards on virtually no news, minuscule news, etc. Greed is thus a powerful factor in bankrupt companies.

Then there is the denial stage. When a stock you own loses value – and a significant amount in that extent, the denial stage takes hold. People don’t like to admit they were wrong. Admitting you are wrong in the game of investing is selling for stock for a loss. Given that most people don’t like to admit they were wrong; they will hold a stock like SunEdison down to the very end. This effectively allows the equity to trade at a valuation and not zero until the time comes when the equity is officially declared dead – even if there is a 99.99% chance that the equity holders will get nothing.

Last but not least, there are manipulators in stock boards, shady websites, Facebook groups, you name it; will pump the value of SunEdison’s equity until the very last drop. Manipulators lure unsophisticated retail investors to believing that equity holders do have some sort of value in the company – even if the debt outweighs the assets by at least one billion.

But is there any hope for shareholder in SunEdison? On a probability basis, probably not. However, if you are an astute trader, you may be able to make a quick buck or two. Furthermore, if you are well versed in shorting, its likely you will do well if you can time the trade at the right moment. But when it all comes down to the end, equity holders are likely to get nothing. If you disagree, keep in the back of your mind what Judge Stuart Bernstein said:

“Judge Bernstein, who has presided over SunEdison’s chapter 11 case from its start in April, said it is “substantially unlikely” the company would be able to pay off its debts. Even working with book values on paper and estimates of what asset sales would bring, SunEdison would come up from $1 billion to $2.5 billions short of debts.”  For continuing coverage on shares of $SUNEQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

 

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2 COMMENTS

  1. Where is your financial analysis to prove your point? The stock might be trading up because the value of the assets is higher than it was when oil was at $30. Without any details, your opinion is about as good as the people who say it is worth something.

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