Stocks to sell

Wait for Sunrun to Find a Bottom Before Investing

  • Shares of Sunrun (RUN) have reversed higher after the company’s Q1 results.
  • The company remains unprofitable and faces headwinds.
  • It is not clear whether RUN stock has found a bottom or has further to fall.
Source: IgorGolovniov / Shutterstock.com

Have shares of solar panel company Sunrun (NASDAQ:RUN) finally hit bottom?

Signs look encouraging. On May 13, RUN stock jumped 15% higher to just over $20 a share as markets attempted a comeback following a brutal stretch of selling through April and the first two weeks of May.

However, even with that big leg up, Sunrun’s stock is still down 60% over the past six months, including a 35% drop this year. This raises the question of whether it’s safe for investors to now approach the volatile San Francisco-based company?

RUN Sunrun Inc. $22.32

Earnings Catalyst

The catalyst that seems to have turned the tide for RUN stock was the company’s first quarter financial results, which were much better than analysts’ had expected. The company announced revenue of $495.8 million for the quarter compared to $401.3 million forecast on Wall Street. While the sales were impressive, the company reported a Q1 net loss of $0.42 per share compared to a loss of $0.17 that was expected.

However, what caught the attention of investors and analysts was news that Sunrun’s customer orders in the first quarter rose 39% from the same period last year. The solar panel and battery manufacturer also raised its forward guidance, saying it now expects to install 25% more solar panel this year than in 2021. Previously, Sunrun forecast installation growth this year of 20%.

In its earning statement, Sunrun, the largest residential solar installer in America, said that it added 29,463 customers during the first quarter, a 20% increase from the same quarter of 2021. The company now has nearly 700,000 customers nationwide.

Renewable Energy Spotlight

Sentiment towards Sunrun and other solar energy companies is improving as oil and natural gas prices hover at multi-year highs, putting pressure on consumers all over the world. With natural gas prices at their highest level since 2008, renewable energy products such as solar panels are suddenly much more competitive with fossil fuels.

This is not to say that Sunrun does not face some ongoing problems. The entire solar panel industry has struggled with global supply chain constraints that have made it difficult to source needed parts. Inflation that remains at a 40-year high is also straining consumer discretionary budgets and making the cost to install and own solar panels more expensive. Sunrun’s management team did say during their Q1 financial release that they are managing to pass along higher costs to customers.

While analysts have been lowering their price targets on RUN stock, the current forecasts continue to suggest upside potential for the solar panel company. JPMorgan Chase (NYSE:JPM), for example, lowered its price target on Sunrun’s shares to $69 from $86. But that still implies the stock could rise 210% from current levels. The median price target on the stock is $45, which would be 103% higher than where the shares currently trade.

Wait For RUN Stock to Truly Bottom

Sunrun is the type of unprofitable company that has gotten punished in the current market. With plenty of uncertainty continuing to swirl around stock markets all over the world, now is not the time to take a gamble on a security like Sunrun.

While the upside could be big, so too could the downside. And it remains to be see if the company’s share price has really found a bottom yet. Right now, RUN stock is not a buy.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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