Sit Out Sunrun Until After the Election

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What’s the behind the big moves in solar installer Sunrun (NASDAQ:RUN) this year? Is it fundamentals? Or, is it politics that’s been driving interest in Sunrun stock since July? Like some of my colleagues where at InvestorPlace, I’m going with the latter.

RUN stock
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Simply put, you can’t talk about this solar play, or any other solar stock, without taking into account political trends. The specter of the Democratic Party, which has vastly increased its support of “green” policies, retaking both U.S. White House and Senate on Nov. 3, could mean boom times ahead for this industry.

But, is now, just days ahead of the election, the time to dive into a name like Sunrun? Not so fast. While this solar play has sold off since early October, shares remain richly priced due to the election catalyst. And while a victory by Joe Biden could fuel another rally, it could also turn into a “sell the news” situation.

Also, while down in the polls, President Donald Trump could pull off another upset. Even if the Democrats score a partial victory (retake the Senate), a solar stock sell-off seems inevitable if Trump wins a second term.

So, what’s the call right now on this popular solar play? While there’s a long-term case to be made for the stock, in the very short term, it’s all about the U.S. presidential election. With this in mind, wait for how things play out after Nov. 3 before making a move.

Sunrun Stock, the Election, and What’s Next

As I mentioned above, some on InvestorPlace have highlighted the election’s major role in this stock’s run-up since the summer. But, while that’s been good for those who got in early, it may mean big downside risk for those diving in today.

What do I mean? In his bearish take on Sunrun published Oct 16, our own Ian Bezek made the case that, outside the election, the company’s fundamentals are terrible. Between declining sales, the risk of an end to solar subsidies, and heavy financial losses, the company has little to fall back on if the election results fail to fall in its favor.

And, even if the results go in its favor, there’s no guarantee RUN stock takes off again. While a Democratic sweep on Nov. 3 would boost the solar sector, some have made the case that this catalyst is more than priced into shares.

That is to say, the controversial “Green New Deal” would have to be quickly implemented to justify today’s valuations for Sunrun and its peers. Simply put, that’s not going to happen. Sure, the proposal is a popular with rising political stars like AOC (Rep. Alexandria Ocasio-Cortez). But, those currently at the helm of the party could quickly put it on the back burner.

Politicians are either side of the aisle are adept at promising big changes, only to resume “business as usual.” The same could happen here with regards to solar.

Can Vivint Merger Put Points Back in RUN?

Momentum trading fueled by the election catalyst pushed Sunrun stock from prices under $20 per share in early summer, to as high as $82.42 per share in early October. But, in the weeks that followed, this hot stock’s hot run quickly faded, with its shares tumbling back towards earth.

But, while shares change hands around $52 per share today, and could potentially dip further, what besides the election could put some points back into the stock?

Sure, right now it’s all about the election. But, in a few weeks, other major factors will resume playing more of a role. And what’s a key non-election factor? The recent closing on Sunrun’s acquistion of Vivint Solar.

Post-merger, the combined company holds 25% of the solar installation market. With $90 million in annual cost savings, the scaled-up company inches closer to profitability.

Yet, while the deal can help Sunrun get out of the red, is it enough to support today’s valuation? Shares currently sport a price-to-sales (P/S) ratio of 7.8. That puts the pressure for this company to not only meet, but vastly exceed, current sales projections.

Wait Until After Election, and Perhaps a Little Longer

What’s the current verdict on this solar play? Even after the October sell-off, shares remain richly priced due to Sunrun’s potential windfall from a Democratic party electoral sweep. But, there’s no guarantee said sweep will happen. Not only that, it may not result in the rapid policy changes currently priced into shares.

Outside of politics, the recent merger with Vivint could help put points back into the stock. Yet, while the deal helps to reduce costs, it may not be an instant needle-mover, either. With many signs shares are overvalued, take your time with Sunrun stock.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/run-stock-wait-after-election/.

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