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Sunedison Inc. - Another Sun Burst?

Sunedison's stock (SUNE) is up almost 15%, as of the time of this writing. Although the jump in price is significant for the day, it only somewhat helped mitigate losses the stock has showed for the last year (it is down by 70%+ YoY):

(Source: Google Finance)

I tried to find good explanation of what cause the price movement. I found an article that contained some good reasoning (a lot of crap, as well) and would like to outline two major reasons the author thinks fueled today's price auction:

(1) "United Nations COP 21 summit in Paris, which concluded on December 12. The summit decided that countries will now resort to much safer alternatives of energy and try to bring global warming levels below 2 degree Celsius. The agreement will also increase the popularity of cleaner forms of energy, such as wind and solar".

(2) Because of the high amount of short interest in the float (about 39% of free float), any positive news would spark a rapid reduction in the short-sellers' positions. It looks like the stock's climbing today has been an example of that.

Well, I looked at the company's financial and found out it is a very risky company in terms of financials:

(Source: Capital IQ)

Revenue growth has been inconsistent over the last ~5 years, EBITDA margin has been extremely volatile, and the company never made money on its operations. Frankly, I am wondering how on earth the company is even being valued! Let us see if we can find answers in the cash flow statement:

(Source: Capital IQ)

From the statement, we can see that the company lost money from operations in 4 years out of 5. And even then, a large chunk of operating cash flows came from an increase in accounts payable (essentially, operating debt)! This is ridiculous, especially as we see that the cash outflows have been increasing rapidly in the past four years! So what kept the company going? Let us see:

(Source: Capital IQ)

The rest of the cash flow statement demonstrates that the company has spend over $11.5B on CapEx over the last few years and raised over $20.5B in cash - mostly from debt issuance (over $18B). As a result, the Total Debt/Equity ratio ballooned from 30% to over 250%, while Total Debt/Capital has increased from 23% to over 70% in a matter of years! Because the company barely ever showed positive EBITDA, the leverage ratio is not meaningful. The current Altman Z-score, which evaluates the probability of bankruptcy, is at 0.15, according to Capital IQ. How do you read this number? http://www.investopedia.com/terms/a/altman.asp#ixzz3uPpoFrdo Follow us: Investopedia on Facebook">Investopedia explains it the best:

A score below 1.8 means the company is probably headed for bankruptcy, while companies with scores above 3.0 are not likely to go bankrupt. The lower/higher the score, the lower/higher the likelihood of bankruptcy.

I do not think I need to proceed any further. I also wanted to do a comps analysis but after reading the above definition I think I will rest my case. You see it all yourselves. RUN FROM SUNE!

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