Rocketing to a price of $17.2 during today's morning trading session, shares of Sunrun are still -13.0% below their average target price of $19.77. Could there be more upside potential for the stock? Analysts are giving RUN an average rating of buy and target prices ranging from $7.78 to $42.0 dollars per share.
The market, on the other hand, is a bit more pessimistic. Sunrun's short interest -- meaning the percentage of its share float that is being shorted on an expectation of a price decline -- is quite high at 28.4%. The float includes only shares that are available for public trading, and excludes preferred shares.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Sunrun, institutional investors own 114.4% of the shares. This would indicate a positive sentiment towards the stock among institutions. What does this really tell us?
Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in RUN, it probably means they believe it is a solid investment choice. But it could also mean they are buying up shares in an effort to acquire the company or get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.
Overall, there is mixed market sentiment on Sunrun because its an analyst consensus of some upside potential, a buy rating, an unusually large proportion of its shares sold short, and a significant number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.
Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are RUN's recent cash flows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | -820,740 | 20,960 | -841,700 | 2.92 |
| 2022 | -848,793 | 18,203 | -866,996 | -4.99 |
| 2021 | -817,186 | 8,576 | -825,762 | -157.19 |
| 2020 | -317,972 | 3,095 | -321,067 | -39.7 |
| 2019 | -204,487 | 25,345 | -229,832 | -240.94 |
| 2018 | -62,461 | 4,951 | -67,412 |
