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Sunrun: Stuck In Earth's Gravity

Dec. 02, 2019 4:21 PM ETSunrun Inc. (RUN)NOVA, SPWR, VSLR3 Comments
Joseph Kowaleski profile picture
Joseph Kowaleski


  • My valuation-based bearish thesis is playing out.
  • Given long-term uncertainty shares are not worth much more than net earning assets; dilution has decreased shareholder value since June.
  • Sunrun is the leader in solar installations in the United States, but the competitive nature of the business makes competitive advantage difficult to establish.
  • The solar industry faces numerous headwinds and challenges; the picture is too murky for long term investors.
  • Should shares decline towards $9.36, a 20% discount on net earning assets, consider Sunrun as a value trade.


Sunrun Inc. (NASDAQ:RUN) was a position I held for a brief period of time in mid-2018, as chronicled. Sunrun is no longer in deep value territory, net earning assets have slowly increased, but dilution has decreased value per share.

Sunrun's convoluted financials, lack of sustainable competitive advantage, and massive cash burn are all red flags. But, on occasion, even such risky assets can be unfairly discounted as was the case in early 2018. But, the wave of euphoria that Sunrun rode to a stretched valuation close to $20 per share was unwarranted. The transformation to alternative energy is still in its infancy, this makes the solar industry speculative to a degree. For this reason, investors must be extra cautious in determining what is a fair value for to pay for these businesses.

Complex Financials

Sunrun's financials are complicated by the nature of the company's model. The company incurs high up front costs for solar systems in which it receives the benefit over a period of 20 years.

High up front costs, and non-existent cash flow is a poor way to run a business. This is a stark contrast from quality businesses like Amazon (AMZN) and Starbucks (SBUX). In Amazon's case, the company is able to collect payments from customers well before it has to pay suppliers. This increases cash flow metrics. Starbucks does something similar, the company benefits from prepayments, it receives cash before it supplies customers with product.

Sunrun, on the other hand, incurs high upfront expenses for money to be received over a long period of time. Amazon's early losses, and Sunrun's GAAP profitability is a perfect representation of the brokenness of reported earnings. One business is generating enormous sums of cash to which it can put to work, while the other is piling on debt.

This article was written by

Joseph Kowaleski profile picture
My investment strategy is growth centric, buying businesses that have a strong ability to generate cash, trade at a great price, have significant competitive advantages, and fundamental utility to customers. Always do your own due diligence before investing.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (3)

Consumer reviews on the company are actually pretty bad. 23% 1 star on the site you linked. Other sites have some pretty horrific customer experiences detailed with a frequency that is quite notable. Check them out and sort on most recent to get the fairest view.
People could consider the aforementioned Enphase or Solaredge as more 'moaty' solar companies. Personally I'm in the Enphase camp as I think their technology is stronger and much more reliable, but there's probably money to be made in both in my opinion.
Apparently, the author hasn’t heard about climate change and the push for green energy which would make this stock attractive.
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