Amid a seasonally spooky October following a stellar quarterly run, is Sunrun (NYSE:RUN) worth buying today? Let’s see what’s happening off and on the price chart for RUN stock, then propose a stronger, risk-adjusted determination for investors.
RUN shareholders enjoyed a sizzling (if not dizzying) rally this summer and into the fall. From July up to a peak and all-time-high share price of $82.42 on October 1, Sunrun soared higher by just over 175%.
Not bad, right? It’s absolutely true, especially compared to solid broader market gains on either side of 10% for the quarter.
Behind the unusually strong rally in RUN shares, it’s fairly common knowledge the solar industry has become a hot play in 2020. Along with alternative energy plays ranging from the largest of the large like EV manufacturer Tesla (NASDAQ:TSLA) to more speculative hydrogen outfits such as Plug Power (NASDAQ:PLUG), this expansive and diverse market has increasingly felt the love from Wall Street on the back of expectations of a Democratic White House and in-tow ‘greener’ energy initiatives.
Still, Sunrun’s stock performance stood out as an early achiever in the space.
Shares outpaced the Invesco Solar ETF (NYSEARCA:TAN) by almost three-to-one over for the quarter ending in September. RUN also crushed enviable rallies in heavily-traded peers First Solar (NASDAQ:FSLR), SolarEdge (NASDAQ:SEDG), Canadian Solar (NASDAQ:CSIQ) and many others. So what’s the deal?
The jumpstart RUN experienced could be attributed to the company’s announced buyout of rival Vivint Solar followed by the Justice Department’s ‘early termination’ of an antitrust waiting period. The deal combines the market’s two largest residential solar installers into one massive renewable energy giant. Cost synergies estimated at around $90 million may have been another factor at play, as Sunrun’s sales and marketing costs have been trending higher since 2017.
The Motley Fool theorizes investors may have partly bid shares up on Sunrun’s increased investment into virtual power plants. In a nutshell, as RUN introduces more energy storage systems it can combine and bid the platforms into competitive power markets. It’s potentially another revenue stream for the company’s thousands of installations each year.
October has been a different and more frightening story for many RUN investors though. The good news in this strategist’s estimation, the price action is actually less scary and resembles what happens consistently to even the best stocks.
RUN Stock Daily Price Chart
Source: Charts by TradingView
The fact is, all stocks correct. And those odds increase after sizable rallies. Even in healthy market environments, profit-taking will eventually make its mark on the price chart.
Technically, considering RUN stock’s October stumble of 36%, the loss in valuation is standard fare for a volatile stock of Sunrun’s caliber. Losses on either side of 30% during risk-on trading environments are routine. And in less benign market cycles, corrective declines of 40% and even 50% aren’t uncommon while the broader market peels off 5% to 10%.
It is what it is. And with the likes of the S&P 500 and Nasdaq Composite giving back 4% to 6% in September and roughly 1% to 2% in October, without oversimplifying matters, it’s likely as simple as that. Looking forward though, buying in the aftermath of RUN’s correction and today’s bullishly-oversold and well-supported candlestick signal is slightly more challenging.
There is next week’s election to consider. It nearly goes without saying the Presidency is going to a contested and drawn out event. Sunrun also has earnings. That raises the bar on uncertainty as a lot of moving parts beyond one or two numbers goes into how investors react to any given quarterly report. I’ll leave it at that, well almost.
Among other expectations, Wall Street’s analyst community is forecasting 2 cents per share on sales of $209 million from Sunrun when it reports November 6. More importantly, investors should be braced for significant gap risk which works both ways. And the way I see it, given where RUN has been, is right now on the price chart and potentially how things may or may not take shape going into the new year, the January $60 / $65 bull call spread looks about right when weighing the risks versus the potential rewards.
Stocks Owned: On the date of publication, Chris Tyler holds, directly or indirectly, positions in Plug Power (PLUG) but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.