What happened

August was another month of declines for the stock of home solar system provider Sunrun (NASDAQ:RUN). Shares fell 16.5% over the course of the month, according to data provided by S&P Global Market Intelligence. That adds to declines in the stock's performance for 2021, as shares are down almost 35% year to date. 

So what

Sunrun wasn't the only stock in the solar sector to drop last month. Shares of competitor SunPower also dropped 13% in August. Sunrun reported megawatt capacity deployed grew 138% over its pandemic-impacted 2020 second quarter, but also more than 80% compared to the same period in 2019. But Sunrun's stock isn't tracking its business performance, offering investors with some risk tolerance an opportunity.

worker installing solar panels on roof with ocean in the background.

Image source: Getty Images.

Now what

In July 2020 Surun acquired rival Vivint Solar for $3.2 billion, including debt, in an all-stock deal. That combination resulted in a business with about 500,000 customers at the time. As of June 30, Sunrun had 599,743 customers, representing annual growth of 20%. 

Sunrun raised its guidance for installed capacity for the balance of 2021 to 30%, at the high end of its previous range. But that growth is coming at a price, and that may be what investors are focusing on right now. Its total cost of revenue grew 124% in the second quarter. 

In the company's conference call with investors, Sunrun CFO Tom vonReichbauer said "the accelerating growth in our business creates a near-term drag on installation and sales and marketing costs." He also said that the company expects cost synergies derived from the Vivint Solar acquisition to be at an annual run rate of $120 million at the end of 2021. 

Costs for consumers have been dropping for solar power. According to the U.S. Department of Energy, the goal for residential solar power cost is $0.05 per kilowatt hour by 2030. That's down from $0.128 in 2020 and $0.50 per kWh in 2010. 

If costs for consumers continue to decrease, it's reasonable to assume that installation growth should continue to accelerate into the future. For investors with the proper risk tolerance, the drop in Sunrun shares could represent a good buying opportunity.

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.