Sunrun (NASDAQ: RUN), a home solar power, battery storage and energy services company, has lost more than half of its value since reaching an all-time high in January, but it looks like the cloudy days of l business are completed.
After acquiring its biggest competitor last year, the country’s leading home solar energy supplier is wisely positioned to capitalize on rising utility tariffs, accelerating adoption of electric vehicles, increasing awareness of the environment and presidential admission that prioritizes investments in sustainable energy and infrastructure.
Brighter days to come?
The renewable energy industry has grown considerably since 2016, and this trajectory is expected to continue in the decades to come. By 2020, renewables accounted for 21% of electricity produced in the United States, according to the U.S. Energy Information Administration. The agency predicts that this percentage will rise to 42% by 2050, largely thanks to solar and wind power.
Amid this growing trend, Sunrun, founded in 2007, is showing impressive growth. Its second-quarter revenue grew 121% year-over-year, beating the expectations of analysts who follow the company. And Sunrun’s CEO predicts a “breakthrough year,” telling investors to expect 30% annual growth.
Sunrun has taken a few hits from a pandemic-stricken economy, as have investor expectations for the expiration of solar tax credits. But the economy is now on the mend, and the Trump administration has extended renewable energy credits until 2022. The Biden administration, given its commitment to tackling climate change, may extend them further.
Clouds on the horizon
On the negative side, Sunrun is not making a profit, and in the second quarter its losses have widened. It reported a net loss attributed to common shareholders of $ 41.2 million, or $ 0.20 per share, compared to about $ 13.6 million, or $ 0.11, in the same quarter last year. Selling and marketing costs, as well as interest costs, were responsible for much of the losses as the company struggled to grow its customer base for future profits.
And while it may be a leader in the residential solar industry in the United States, it is a crowded segment. With the exception of Tesla Energy, Sunrun mainly competes with private solar home installation companies. And its total market share is only around 15%.
That’s more than double the size of its closest competitor after Sunrun acquired No.2 player Vivnt last year, but that doesn’t constitute an economic divide. Many of its competitors could potentially gain market share through mergers or increased capital funding.
Another caveat: Sunrun may not achieve the synergies it expects from its recent merger with Vivint, or its cash flow management strategy may falter. The company operates on funding and cash flow, including annual recurring revenue of $ 747 million from contracts with an average term of 17.2 years.
An uncertain forecast
A losing money solar business with huge growth potential and guaranteed income is difficult to assess. Argus analysts calculate a price-to-earnings ratio of 20 for Sunrun, lower than many P / Es among its profitable competitors. And Sunrun’s book value is 1.4, compared to an average of 2.7 among its closest competitors, according to S&P Capital Intelligence.
Investors will have to bet on the company’s growth potential – and in a time of growing storm-related power outages, Sunrun management is looking at all homes that don’t have rooftop panels or batteries on them. their walls. Management notes that only 3.5% of the 77 million homes have solar power in a US residential electricity market worth more than $ 187 billion.
The purchase of Vivint made Sunrun the largest player in its field and gave the company a wider reach in the residential market than its competitors. Gaining market share and reaching a larger scale also increases its ability to control costs, which could make Sunrun a more competitive company in terms of price.
Today, the stock is cheaply compared to the company’s potential, and at least one thing is almost certain: the sun will rise tomorrow.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.