After popping as high as $32 this morning, Sunrun (NASDAQ:RUN) stock has given up some of its gains. However, RUN stock is still up 25% today on news that Sen. Joe Manchin has come to an agreement on the Inflation Reduction Act.
Aimed at reducing the budget deficit via tax reform while also investing in renewable energy, this act is sending solar stocks higher across the board. Now, the sector is finally seeing some concrete evidence that President Joe Biden’s climate change rhetoric will turn into some action.
However, an interestingly timed short report from Muddy Waters is complicating Sunrun’s move right now. The report targets Sunrun’s fundamentals and appears to have caught investors’ attention. Now, it’s a question of whether the bulls or bears will be proven right from here.
Let’s dive more into the new short report. Here’s what the firm has to say about Sunrun and RUN stock.
RUN Stock Surges on Climate Deal, Gives Up Gains on Short Report
As one of today’s winners, many environmental, social and governance (ESG) investors may have rightly thought RUN stock finally had a catalyst to support upside momentum. After all, today’s announcement is good thing; federal money will finally flow to the solar sector.
Muddy Waters’ short report appears to be spoiling the party, however. Indeed, when a short target like Sunrun surges like it has today, short selling can become more profitable. That is, if the market buys into the thesis behind the report.
Muddy Waters makes a number of interesting allegations in its report. Plus, the firm has been right on other short bets in the past. Recently, the firm has also focused increasingly on the behind-the-scenes accounting games some ESG companies have pursued.
That’s the case in this report, too. Apparently, Muddy Waters takes issue with how Sunrun claims tax credits, suggesting the company essentially claims a tax credit on its tax credit. This may have resulted in as much as $948 million being pilfered from the Internal Revenue Service’s (IRS) coffers.
On top of that, the short seller also believes Sunrun’s assets and subscriber values are overstated, leading to “real” net earnings being substantially lower than stated.
We’ll have to wait and see how Sunrun responds to these allegations. For now, though, RUN stock will likely be very volatile moving forward. Personally, I’ll be watching shares closely from here.
On the date of publication, Chris MacDonald did not hold (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.