Short Sellers Eye Sunrun After Stock Popped 57% This Month

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Key Points

• Investors have been turning to small cap stocks over the past few weeks, with the Russell 2000 Index up 11% so far in July.
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Renewable energy is indisputably the future of electric power production both in the U.S. and around the world. However, stateside adoption rates have been slow to get off the ground despite market saturation driving down consumer prices. Nonetheless, one company has seen its shares skyrocket since the start of July. And in doing so, it has become the target of short sellers.

San Francisco-based Sunrun Inc. ( NASDAQ: RUN ) was founded in January 2007 and now boasts a market cap of $3.80 billion, putting it just outside of the small-cap range. The company has almost exclusively embraced a power purchase agreement business model wherein Sunrun installs photovoltaic rooftoop arrays for residential clients, then sells the power to the customer at an agreed upon rate over terms of 20 and 25 years.

The model seems to have worked well. Sunrun has partnered with big-time retailers like Costco Wholesale Corp. ( NASDAQ: COST ) and Home Depot Inc. ( NYSE: HD ), and its shares are up 57% since the start of July. But those recent gains might have been the very reason red flags were raised on Wall Street. Over the past year, the stock has shed over 21%, and since its all-time high on Jan. 8, 2021, it is down  more than 82%.

Unsustainable Big Gains

There are presently 52.179 million shares of Sunrun being shorted, according to Nasdaq.com's most recent settlement date of June 28, 2024. That figure is good for 23% of the company's total 221.66 million shares outstanding, based on an estimated 3.8 days to cover. At the start of the year, there were one 34.045 million shares of RUN being shorted.

So why the sudden increase in short seller interest? On a trailing 12 month (TTM) basis, operating expenses of $983.70 million have eroded $1.73 billion in revenue. The company has also seen -$820.74 million in free cash flow TTM, which represents an enormous 158.12% increase over 2020's -$317.97 million in free cash flow.

The result: RUN has posted negative quarterly earnings every quarter but one dating back to the first quarter of 2023. Additionally, the company has missed revenue estimates four quarters in a row and currently holds an EPS forecast of -3 cents for the current quarter.

The Wall Street Journal's one-year median price target for RUN is $18, which is just 4.6% higher than the stock's current price of $17.17.

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