A few weeks ago in this space, after SunEdison’s (SUNE) announcement that they would pay $2.2 billion deal to buy Vivint Solar (VSLR) I opined that the bubbly m&a and what appeared to be very creative financial engineering in the solar space (read: Throwin’ Shade at Solar Stocks) could signal an impending inflection point. This also came at a time where correlations to falling energy prices could add the fuel to the fire.
I must add that I have no positioning in solar stocks, and you could dismiss my views as unenlightened, because the accounting that makes the recent m&a viable, and the use of “yieldcos” to unlock value has been beyond my rational thinking for months/quarters. And the stocks were proving me and every other naysayer wrong until very recently. All you had to do was look at the top holders list for SUNE to see just how ill informed me and other skeptics must have been, it’s a “who’s who” of hedge fund geniuses, Greenlight Capital, Glenview Capital, Lone Pine Capital, Third Point Capital, Omega Advisers and York Capital, all top 12 holders in the latest 13f filings form Q1:
As an individual investor, or even a financial pundit it can be sort of intimidating to look a list like that above, and consider the billions of dollars behind a bull thesis and attempt to pick it apart. These funds not only commit the capital, but spend considerable resources to vetting their thesis. Which is why SUNE’s 50% decline from its July 20th high to yesterday’s close is so shocking:
What’s also surprising is that a quick peek at options open interest in the stock reveals that calls outnumber puts 1.5 to 1 with 8 of the top 10 most widely held strikes calls:
I suspect we some of this call activity could have been selling by holders looking to lower their delta exposure, or possibly existing holders replacing stock with calls, or call spreads. But what’s obvious to me is that something changed in the outlook for the space when you see this sort of selling over such a short period of time. I also suspect when we get Q2 13f filings in the next week or so we are not likely to get to many answers, as the stock closed Q2 just a tad off of the then 52 week highs, and sentiment remained positively disposed at the time.
I am not too interested in picking a bottom in the space. It’s filled with financial structures that seem at best intended to add torque to an already money losing business, and at worst possibly adding suspect accounting. For those who think this price action is overdone, I point you to the bubbles that inflated and bursts in once loved stocks like 3D Systems (DDD), Stratsys (SSYS), Pandora (P) and Yelp (YELP). Those companies had challenged valuations, but not nearly as opaque financial models.
And when a fancy hedge fund billionaire has taken your side of a trade, it’s important not to celebrate early because “That’s the way it goes, but don’t forget it goes the other way too.”