Despite a recent surge in stock price, Sunrun (NASDAQ: RUN), a home solar panel and battery storage company, has faced challenges in the residential market due to higher interest rates making borrowing for solar installations more expensive. While Sunrun’s revenue saw a significant increase between 2020 and 2022, it fell 3% year-over-year to $2.3 billion in 2023. As a result, Sunrun’s stock has declined sharply by 80% since early 2021, compared to a 40% increase for the S&P 500 over the same period.
Over the past three years, Sunrun’s stock has underperformed the broader market with returns of -51% in 2021, -30% in 2022, and -18% in 2023, in contrast to returns of 27%, -19%, and 24% for the S&P 500 during the same period. The challenging environment for individual stocks to outperform the market has been observed not only for Sunrun but also for other major companies in various sectors, highlighting the difficulty in consistently beating the S&P 500. However, the Trefis High Quality Portfolio has outperformed the benchmark index each year over the same period, indicating better returns with less risk.
Considering the current macroeconomic conditions with high oil prices and elevated interest rates, the future performance of Sunrun stock remains uncertain. Analysts’ average price estimate of $20 reflects over 50% upside potential from the current price of $13. Although Sunrun is expected to see a decline in sales this year, a rebound in 2025 is anticipated as interest rates are projected to decrease. While the stock currently trades at 1.3x revenues, lower interest rates in the future could support the company’s expansion efforts and boost its stock price.
Looking ahead, investors should weigh the potential risks associated with Sunrun stock, especially in a scenario where the U.S. Federal Reserve decides not to reduce rates due to higher inflation, leading to downward pressure on stock levels. Despite the challenges faced by Sunrun in recent years, the risk-reward balance is likely to be positive, suggesting potential upside for investors. Additionally, comparing Sunrun’s performance with its peers in the industry can provide valuable insights for investors seeking opportunities in the solar energy sector.
Overall, while Sunrun stock may face headwinds in the short term, there is potential for growth and recovery in the long term. With expectations of a rebound in 2025 and the possibility of lower interest rates supporting expansion efforts, Sunrun could see improved performance in the coming years. Investors should consider the unique risks and opportunities associated with investing in Sunrun stock, along with broader macroeconomic factors influencing the solar energy market.
