Sunedison Inc (NYSE: SUNE)
Last week, Sunedison had an incredible time in the market, gaining in nearly every trading session throughout the week. However, as the gains commenced, I wrote a few articles, warning investors of what was likely to come. While I did receive a few unsavory emails with regard to my bearish opinion of the stock, I’m glad that I didn’t play into the hype. The bottom line is that today, my predictions are coming to fruition. So, is this the end of the declines for SUNE? In my opinion, the answer is no! Today, we’ll talk about why we saw gains last week, why the stock is giving up gains today and what we can expect to see from SUNE moving forward.
Why SUNE Climbed Last Week
The gains that we saw from Sunedison last week were the result of a canceled deal with a Brazilian renewable energy company known as Renova Energia. If the deal were to go through, Renova Energia would have received $3.45 billion worth of stock in TerraForm, a subsidiary of Sunedison. However, last week, it was announced that Sunedison decided not to go through with the deal. As a result, investor excitement pushed the stock upward. Nonetheless, as mentioned in articles I wrote last week, this kind of information generally leads to short term gains, not a long term uptrend. As you can see from movement on the stock today, that hypothesis has been confirmed!
Why SUNE Is Falling Today
Sunedison is having an incredibly rough day in the market today. Currently (10:19), SUNE is trading at $3.43 per share after a loss of $0.21 or 5.77%. So, what’s causing the dramatic decline? There are two reasons…
- Natural Market Movement – First and foremost, one of the reasons for the decline we’re seeing from SUNE today is natural market movement. It’s important to remember that price movement in the market tends to happen through a series of overreactions. Last week, we saw an overreaction to the positive news, pushing the stock far higher than it should have gone. So, today, the stock is correcting.
- Oil Is Plummeting – More importantly however, while SUNE is a renewable energy company, it’s still a company within the energy sector. This means that Sunedison is largely at the mercy of oil prices. Unfortunately, oil is plummeting today, making it’s way close to a 7 year low! This ultimate takes a toll on the energy sector as a whole.
What We Can Expect To See Moving Forward
While I know that my opinion is likely to lead to more unsavory emails, I have to say that my thoughts with regard to SUNE remain largely unchanged. The reality here is that SUNE is a great company, but it’s stuck in a poor sector. The bottom line is that no matter how great Sunedison is, it’s revenue is dependent on consumer views of energy costs. Right now, energy costs are low, so we can’t expect to see any drastic gains in the stock any time soon. Unfortunately, this is a trend that’s likely to remain unchanged throughout 2016 and possibly 2017. As a result, I’m expecting to see a continuation of poor movement on the stock through this time. The bottom line is that for SUNE to see any notable gains, we are going to have to see notable gains in oil, this simply isn’t likely to happen any time in the near future.
What Do You Think?
Where do you think SUNE is headed and why? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]
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