Why New Fortress Energy Stock Plummeted 7.4% Today
Key Points
New Fortress Energy is heavily indebted and struggling to secure a critical contract in Puerto Rico.
The company was given a lifeline by creditors, but its problems are far from solved.
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Shares of New Fortress Energy (NASDAQ: NFE) fell on Tuesday, finishing down 7.4%. The drop came as the S&P 500 and Nasdaq Composite gained 0.9% and 0.6%, respectively.
The embattled liquified natural gas (LNG) company is facing the threat of bankruptcy as it continues to clear regulatory hurdles and service mounting debt.
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New Fortress gets a reprieve
As the company continues to struggle to finalize a $4 billion contract in Puerto Rico -- a deal still under review by the island's Financial Oversight and Management Board -- creditors have agreed to grant the company a brief reprieve, postponing interest payments on billions of dollars of debt until December 15th.
The news, announced last week, sent shares flying, but the stock has come back to earth as investors face the reality of the company's situation.
Image source: Getty Images.
Shareholders beware
Given New Fortress's issues, the company's stock is heavily shorted. That's made it a popular target for retail investors hoping for a short squeeze. While this is certainly possible, investors need to be aware of how risky it is to invest in a company on the verge of bankruptcy. If the company is forced into a restructuring, common shareholders could easily get wiped out. The company's creditors will receive the lion's share of whatever emerges from bankruptcy protection.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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