Shares of Sunrun Are Dropping Today. See Our Analysis!

Solar company Sunrun stunned Wall Street today as it plummeted to $19.34, marking a -3.7% change compared to the S&P 500 and the Nasdaq indices, which logged -0.0% and -1.0% respectively. RUN is -43.57% below its average analyst target price of $34.27, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, Sunrun has lagged behind the S&P 500 by -35.0%, moving -17.5%.

Sunrun has a trailing 12 month P/E of 193.4. Unlike its trailing EPS of $0.1, the company's forward EPS is negative at $-0.47 so they do not publish a forward P/E ratio. Calculating it ourselves, we see that RUN has a forward P/E ratio of -41.1.

As of the first quarter of 2023, the average Price to Earnings (P/E) ratio of US technology companies is 27.16, and the S&P 500 average is 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

We can take the price to earnings analysis one step further by dividing the P/E ratio by the company’s projected five-year growth rate, which gives us its Price to Earnings Growth, or PEG ratio. This ratio is important because it allows us to identify companies that have a low price to earnings ratio because of low growth expectations, or conversely, companies with high P/E ratios because growth is expected to take off.

Sunrun's PEG ratio of 1.76 indicates that its P/E ratio is fair compared to its projected earnings growth. In other words, the company’s valuation accurately reflects its estimated growth potential. The caveat, however, is that these growth estimates could turn out to be inaccurate.

To better understand the strength of Sunrun's business, we can analyse its operating margins, which are its revenues minues its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-12-31 2,321,422 960,904 -28.53 31.05
2021-12-31 1,609,954 910,669 -41.38 17.96
2020-12-31 922,191 643,773 -50.44 -100.72
2019-12-31 858,578 428,489 -25.13 n/a
  • Average operating margins: -36.4%
  • Average operating margins growth rate: -3.2%
  • Coefficient of variability (lower numbers indicate less volatility): 32.2%

Sunrun's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to its operating cash flows minues its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cashflow ($ k) YoY Growth (%)
2022-12-31 -848,793 -2,011,066 -2,859,859 -14.24
2021-12-31 -817,186 -1,686,185 -2,503,371 -94.41
2020-12-31 -317,972 -969,675 -1,287,647 -23.22
2019-12-31 -204,487 -840,533 -1,045,020 n/a
  • Average free cash flow: $-1923974250.0
  • Average free cash flow growth rate: -28.6%
  • Coefficient of variability (lower numbers indicating more stability): 46.4%

If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for RUN, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts. As of the first quarter of 2023, the average P/B ratio for technology companies is 6.23. In contrast, the average P/B ratio of the S&P 500 is 2.95. Sunrun's P/B ratio of 0.64 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock.

As of first quarter of 2023, Sunrun is likely overvalued because it has an inflated P/E ratio, an exceptionally low P/B ratio, and negative cash flows with a downwards trend. The stock has poor growth indicators because of its consistently negative margins with a stable trend, and a negative PEG ratio. We hope this analysis will inspire you to do your own research into RUN's fundamental values -- especially their trends over time.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.