Enron stock: the price history of a $70 billion collapse

Enron stock price history in the 1990s

In 1990 about 80% of Enron's revenue came from its regulated gas pipelines. By 2000, 95% of its revenue came from wholesale energy operations and services, total revenue topped $100 billion, and its chief executive was describing it as a "logistics company". Fortune ranked it seventh on its list of America's largest companies, and at its peak the stock market valued it at close to $70 billion. The share price followed that story. It moved slowly through the mid-1990s, then took off in 1999 and 2000, when investors began paying a technology-style multiple for Enron's earnings.

From the 1993 low to the 2000 high, the stock rose roughly eightfold. Most of that came at the end. The stock never traded above $30 in 1998, then returned 89% in 2000, a year when many technology stocks were falling apart (the backdrop is covered in our dot-com bubble guide). Part of the appeal was a young broadband business, which Enron itself valued at $40 a share. By early 2001 the stock traded at about 55 times trailing earnings, more than twice the multiple of the S&P 500 and about level with Cisco Systems.

The 2001 collapse, date by date

Enron did not fall in a single day. The stock began a long slide in mid-March 2001, well before anyone outside the company knew the details, and then sped up as the disclosures came one after another in the fall.

Two of those days set the tone. On October 22 the stock lost 20.7% and was the biggest loser on the NYSE. The SEC wanted information on partnerships organized by chief financial officer Andrew Fastow. Enron later explained the $1.2 billion equity hit as the correction of an accounting error: it had counted notes receivable from entities set up with LJM2, given in exchange for Enron stock and stock rights, as an addition to shareholders' equity. Fastow was replaced as CFO within the week. On November 28, Standard & Poor's cut Enron's debt to junk. That forced about $3.9 billion of debt to come due at once, and Dynegy dropped the merger the same day. More than 181 million Enron shares changed hands, a one-day NYSE record at the time, and the price fell 85% to 61 cents.

The math for a buyer at the top: $10,000 invested at the $90.56 close was worth about $29 at the last close before the filing. Holders who bought the October dip did not do much better. From the October 16 close to November 8, the stock lost another 75%.

What the rest of the market did

Enron fell while the broader market was weak, but the two moves were nothing alike. From Enron's peak close on August 23, 2000, to November 30, 2001, the S&P 500 price index dropped 24.3%, from 1,505.97 to 1,139.45. Oil major Exxon Mobil lost about 9% including dividends. Enron lost 99.7%. Between Skilling's resignation and the bankruptcy filing, the S&P 500 lost only 4%.

This matters for anyone who looks only at index charts. A company that collapses is dropped from the S&P 500 and quietly replaced, which is one reason index history looks smoother than the experience of owning individual companies. We explain that effect in our article on survivorship bias.

What Enron employees lost

The losses hit hardest inside the company. At the end of 2000, about 62% of the assets in Enron's 401(k) plan were Enron shares, according to the Congressional Research Service. Enron matched half of employee contributions up to 6% of pay, and the match came only in Enron stock. Under plan rules, employees could not move that match into other funds until they turned 50, the General Accounting Office told Congress in February 2002.

• The lockdown. Enron was switching plan administrators in the fall of 2001, and accounts were frozen for several weeks while the stock collapsed. The employees' lawsuit put the freeze at roughly October 26 to November 14, a stretch in which the stock lost more than a third of its value.
• The size of the loss. Plaintiffs estimated that the 401(k) savings plan and the employee stock ownership plan lost about $2 billion. A 2007 New York Times report likewise put the damage to Enron's pension plans at more than $2 billion.
• Jobs. The day after the filing, Enron announced 4,000 layoffs, about a fifth of its 21,000 employees, mostly at its Houston headquarters.
• Recovery. In 2005 the Labor Department agreed to give the retirement plans a $356.25 million claim in the bankruptcy. Because claims were paid from whatever assets were left, it expected only tens of millions of dollars to reach participants.

According to the opening statement at a February 2002 Senate Governmental Affairs Committee hearing, Ken Lay told employees at a September 26, 2001 meeting that the stock's $27 price was "an incredible bargain". On October 16, less than three weeks later, the company announced its $1 billion after-tax charge.

Warning signs that were visible in real time

Hindsight makes this look easier than it was. In early 2001, 13 of the 18 analysts who covered Enron rated it a buy. Still, several warning signs were public, in filings and in print, while the stock still traded at $40 or more.

• Earnings without cash. Enron reported net income of $979 million for 2000. Yet in the first nine months of that year it produced only about $100 million of cash from operations, and Fortune noted that even that would have been negative without $410 million in tax benefits from employee stock options. The full-year figure later came in at $4.8 billion, which meant almost all of it arrived in the fourth quarter.
• Mark-to-market accounting. Enron valued its trading contracts at estimated market prices and reported changes in that value as earnings, even when no cash had arrived. For long-dated contracts, those values leaned heavily on Enron's own estimates.
• Related-party partnerships. Note 16 of the 2000 annual report described deals in which Enron put about $1.2 billion of assets into entities formed with partnerships whose general partner's managing member was "a senior officer of Enron". That officer was the CFO. Enron later said Fastow had made more than $30 million from the LJM partnerships.
• Rising debt. Fortune counted $3.9 billion of new net debt in the first nine months of 2000, which raised debt to 50% of capital from 39% at the end of 1999.
• The Fortune article. On March 5, 2001, Bethany McLean asked "Is Enron Overpriced?" when the stock traded around $76. Her question was simple: how exactly does Enron make its money? Skilling called her unethical and hung up on her, according to the Washington Post.
• Short sellers. Jim Chanos of Kynikos Associates was betting against the stock and pointed McLean to Enron's 10-K. Enron publicly blamed short sellers for talking the stock down.
• An unexplained CEO exit. A chief executive who leaves six months into the job for "personal reasons", at a company that says its prospects have never been better, is a signal in itself.
• Insider selling. Top executives sold large amounts of stock before the collapse, though the full scale only came out in court. The employees' later lawsuit alleged that Lay sold about 4 million shares for $184 million, Skilling about 1.3 million shares for $71 million, and another senior executive, Lou Pai, shares worth $270 million.

What happened afterwards

• Arthur Andersen. Enron's auditor was convicted of obstruction of justice by a Houston jury on June 15, 2002, over the destruction of Enron documents. The verdict all but ended the firm. On May 31, 2005, the Supreme Court unanimously overturned the conviction because the jury instructions were flawed.
• Sarbanes-Oxley. The Sarbanes-Oxley Act, signed on July 30, 2002, tightened rules on corporate disclosure and auditing. By then WorldCom had filed an even larger bankruptcy; that story is in our WorldCom article.
• Lay and Skilling. On May 25, 2006, a jury convicted Skilling on 19 counts, including conspiracy, fraud and insider trading, and acquitted him on nine insider-trading counts. Lay was convicted on all six counts he faced, plus four more in a separate trial before the judge. Lay died in July 2006 before sentencing, and his convictions were vacated that October.
• Sentences. Skilling was sentenced to 24 years in 2006. In 2013 a judge cut 10 years from the sentence after a deal in which he gave up about $42 million for victims and agreed to stop appealing. Fastow pleaded guilty and received six years.
• Shareholders. The securities class action led by the University of California recovered about $7 billion, which UC called the largest settlement in the history of securities class actions. Payouts to investors began in December 2008.

For a full account, Bethany McLean and Peter Elkind's book became the 2005 documentary "Enron: The Smartest Guys in the Room", directed by Alex Gibney.

Can you buy Enron stock today?

No. The NYSE suspended trading in Enron on January 15, 2002, after the shares had stayed below $1 for more than 30 days, and moved to delist them. Payouts to creditors under the bankruptcy plan began in late 2004, and what was left of the company, renamed Enron Creditors Recovery Corp., existed only to liquidate the remaining businesses and assets. The estate's claims FAQ said it did not expect the bankruptcy estate to ever pay anything to former holders of Enron stock. No company today carries Enron's old shares, and there is no ticker to buy.

Enron stock certificates are a different matter. They have no value as a claim on anything, but they have value as memorabilia. By April 2002, Scripophily.com, a dealer in old securities, was already advertising Enron certificates. Whatever one sells for now is collector value set by the story, not by the company.

Playing Enron without knowing it is Enron

In Blindfolio, Enron is one of about 290 instruments, shown under a temporary codename like every company in the catalog. Pick the 1990s as your start decade and the round may cover the late-1990s run-up and, if it runs long enough, the 2001 collapse. With a chosen decade you see the dates, but not the company's name or ticker. For the fully blind version, play a random round: the year is hidden in the date and masked in the headlines, and the round may land in this era. Time runs week by week and you can pause at any moment; era news arrives as headlines, and the Fed funds rate is shown on the bank deposit. The game's Enron series is a smoothed reconstruction built for play, so use the tables above for exact historical prices.

Playing blind makes the question honest. Would you have trusted a fast-growing energy trader that was hard to understand and getting expensive, or sold too early and missed the best year? Our piece on hindsight bias explains why this is harder to judge in the moment than it looks today.