Sunrun (NASDAQ:RUN), a company that markets residential solar energy systems, is on the list of stocks Jim Cramer says you should sell. RUN stock has losses of nearly 30% year-to-date and is down approximately 53% in the past year. Why does Jim Cramer recommend selling it? I do not know Cramer’s exact rationale for his recommendation and it is not wise to rely solely on an influencer, celebrity, or well-known expert to make investment decisions. If only stock investing was that easy.
Analyzing the fourth quarter and full-year 2021 financial results for Sunrun, there is positive news. It enjoyed “31% growth in Solar Energy Capacity Installed in 2021, exceeding guidance and reflecting the highest growth rate in five years at nearly three times the operating scale.” Additionally, the firm entered 2022 with a “record backlog of orders.” Moreover, In 2021, revenue grew to $1,610 million, a 75% increase compared to 2020. However, the total cost of revenue grew even faster to an increase of 84% year-over-year.
For the full-year, Sunrun reported a net loss of $79.4 million, or 39 cents per share. In 2020, Sunrun had a net loss of $173.39 million. These numbers tell a story, but are not enough to make a solid argument as to why RUN stock is a sell now. We should provide a more credible analysis. Here are the top reasons why shares of Sunrun are a sell.
First, the firm was unprofitable in 2020 and 2021. Between 2017 and 2019, it was making a profit. However, Sunrun has a loss from operations and negative net operating cash flows for the full period of 2017 to 2021. Operating cash flow reflects the financial success of a company’s core business activities and the amount of cash generated by a company’s normal business operations. Sunrun performs very poorly in this metric.
The firm also has a severe cash burn problem. In 2021, the number of diluted shares increased to 205,132,000 compared to 139,606,000 in 2020, a nearly 47% increase. Another major problem is that, according to Simply Wall St, Sunrun “has less than a year of cash runway based on its current free cash flow.” Additionally, The debt-to-equity ratio has increased to 1.06 in 2021 from 0.81 in 2020. Finally, Sunrun has an Altman Z-score of 0.36, which is in the distress zone. This implies the possibility of bankruptcy in the next two years.
Overall, this is an unprofitable firm that is burning cash and cannot make money from its core business operations. These reasons build a solid argument to avoid RUN stock now. Yes, Jim Cramer got it right.
On the date of publication, Stavros Georgiadis, CFA 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.