Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Shares of Sunrun Have Gone Up 72.3% in the First Half of 2019

By John Bromels - Jul 11, 2019 at 12:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The solar installer is benefiting from high expectations.

What happened

Shares of solar panel installer Sunrun ( RUN 1.96% ) are up 72.3% so far in 2019, according to data provided by S&P Global Market Intelligence. Shares rose at a steady clip in the first two months of the year, but stalled in March and April before resuming an upward trajectory in May and June. 

So what

Sunrun's last six months are basically divided into three acts. Act I saw the company report solid performance in Q4 2018 and, in the words of CEO Lynn Jurich from the earnings call, introduce "guidance for growth to accelerate in 2019, unit margins to expand further, and cash generation to grow by more than 50% to over $100 million."

A girl in oversized sunglasses looks upwards towards the sun

Sunrun is the largest residential solar installer in the U.S. But can it outperform? Image source: Getty Images.

That all sounded good, and shares reacted accordingly. But Act II introduced a new wrinkle in the form of Tesla ( TSLA 1.64% ), which announced in late April that it was slashing the prices of its solar installations. Initial reports indicated that Tesla might undercut the price of traditional installers by as much as 38%, but that number was later recalculated to something in the neighborhood of 10%. Still, shares of Sunrun and other installers fell on fears of increased competition. They fell again in early May, after the company reported weak Q1 2019 earnings. 

But in Act III, the market realized something: California -- where Sunrun is based -- has mandated that solar panels be included in all new construction by 2020. That should open up huge demand for solar installation, and Sunrun is poised to benefit. The company has been spending a lot of money trying to drum up sales, but if those sales are essentially mandated in the nation's most populous state, that could allow Sunrun to cut expenses and grow revenue at the same time. Its shares soared after Goldman Sachs pointed this out in June and simultaneously upgraded the stock. 

Now what

California's impending solar mandate could be the secret sauce that Sunrun has been looking for to allow it to flourish. But other installers -- including California-based Tesla -- will also be looking to get in on the action. 

In the meantime, there are other concerns about the business, including its rising debt and the questionable way it values its installed solar assets on its balance sheet. You may decide that the potential opportunity offered in California outweighs those concerns, but be aware that if you buy in now, the big-growth thesis for the stock essentially puts all its eggs in one basket. If that doesn't come to fruition for some reason, shares are likely to suffer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sunrun Inc. Stock Quote
Sunrun Inc.
$44.68 (1.96%) $0.86
Tesla, Inc. Stock Quote
Tesla, Inc.
$1,068.96 (1.64%) $17.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.