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TerraForm Power: Empire Of The Sinking Sun; 100% Overvalued Under Realistic Assumptions

I believe investors should avoid TerraForm Power (TERP). The problem is that the company's intrinsic value is based on the whims of Mr. Market - a notorious schizophrenic. Put simply, TerraForm's constant reliance on the equity market to fund new projects means that, unlike most normal companies, its stock price is the key driver of its value. If the market is bullish on TerraForm's prospects then the company could experience a virtuous cycle where a higher stock price leads to a higher intrinsic value. If the market chooses to shun the company, on the other hand, then there is a potential for a vicious cycle, whereby a fall in stock price leads to a lower intrinsic value.

I believe a vicious cycle - or death spiral - is the most likely outcome of the two. Unlike the case for the virtuous cycle, which relies only on the greater fool theory,… Read More …