What: Shares of Sunrun Inc. (RUN -1.85%) plunged 41% in February as investors questioned the long-term value creation of rooftop solar companies.
So what: The worst day of the month for Sunrun was on Feb. 9, when competitor SolarCity (SCTY.DL) reported earnings that fell short of its own expectations and first-quarter guidance that forecast slowing growth. One of the key factors in the disappointing results was Nevada, which changed its rules on net metering late in December to make them less favorable to owners of solar power systems. Sunrun, too, had been one of the companies betting on growth in Nevada, and there are fears that when its results are released later this week, its figures will be similarly disappointing.
It didn't help that Barclays downgraded Sunrun's stock shortly after SolarCity's earnings came out. The bank also projected that the stay granted by the Supreme Court that temporarily halted implementation of the EPA's Clean Power Plan would also lead to reduced demand for rooftop solar.
Now what: We'll know more about Sunrun's growth rate when it reports earnings on March 10, but it doesn't look like residential rooftop solar is going to be growing as fast as it has in recent years. Margins have also contracted as the industry has gotten more competitive and borrowing costs have risen. Keep an eye on how Sunrun's cost structure improves throughout the year, because in 2015, it wasn't the low-cost supplier. That could spell trouble as the industry gets more competitive and customers demand more from their solar installers.