The stock price of Sunrun (NASDAQ: RUN) has surged by over 25% in the past month, along with a broader rise in solar stocks benefiting from increased energy demand for AI data centers. However, Sunrun focuses on the residential market, and higher interest rates have made borrowing for solar panel installation more expensive, leading to a decline in sales growth. Despite revenue surging 2.5x between 2020 and 2022, it fell by 3% y-o-y to $2.3 billion in 2023, causing the stock to decline by 80% from $70 in early 2021 to around $13 currently, compared to a 40% increase for the S&P 500 over the same period.
For the past three years, RUN stock has underperformed the broader market, with returns of -51% in 2021, -30% in 2022, and -18% in 2023, compared to 27% in 2021, -19% in 2022, and 24% in 2023 for the S&P 500. Beating the S&P 500 has been challenging for individual stocks in recent years, including heavyweight companies in the Industrials sector and megacap stars like Google, Tesla, and Microsoft. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 consistently each year over the same period due to better returns with less risk.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, there is speculation about whether Sunrun will continue to underperform or have a potential recovery in the next 12 months. Analysts’ average price estimate of $20 reflects over 50% upside from its current levels of $13. RUN stock is currently trading at 1.3x revenues, lower than the average of 2.1x over the last seven quarters. While Sunrun is expected to see a mid-single-digit decline in sales this year, a sharp rebound is anticipated in 2025, especially with lower interest rates expected to increase installed capacity.
Investors need to consider other potential risks, such as the U.S. Fed’s decision on rate cuts and higher inflation, which could impact the performance of RUN stock. Although there is potential for higher levels over time, evaluating how Sunrun’s peers are performing on important metrics can provide valuable insights. Peer comparisons across different industries can offer a better understanding of the overall market landscape and help investors make informed decisions.
Overall, Sunrun’s stock performance is closely tied to changing macroeconomic conditions, interest rates, and industry trends. While there is potential for growth and recovery in the coming years, investors should carefully assess the risks and opportunities associated with investing in Sunrun and the renewable energy sector as a whole. It is essential to stay informed about market dynamics and industry developments to make strategic investment decisions and navigate the volatile market conditions successfully.
