RUN away as fast as you canSometimes you get a trade idea that gives you both fundamentals and technicals coming together. I think this is one of those.
RUN Technical Thesis:
With the primary thesis on this trade being the fundamental story, it's nice to have some technical confluence here.
✅ Bare minimum I see this coming to a 61.8% fib retracement giving you PT 1.
✅ Head and shoulders pattern giving you a measured move for PT 2.
✅ Price target 3 will be your 2017 lows.
RUN Fundamental Thesis:
Sunrun has the largest market share in the Residential solar sector. 1/3 of all residential solar is in California and in April 2023 they are implementing NEM 3.0. What is NEM? NEM (Net Energy Metering) is basically the incentives that the state gives when you generate excess power. Under NEM 3.0 the savings will be more than cut in half - making it much less enticing to install solar. On a cash install your $18 power bill goes to a $96 power bill.
So why Sunrun? They're the leader in solar residential, right? They've gotta be killing it! They have massive revenue growth and look to be net income positive, right? Yeah, but their COGS are growing faster than their revenue growth.
Enter their cash flow statement. This is what made me pick RUN for the short. One big thing stuck out to me in their cash flow statement. The cash from investing activities section is where you would put acquisitions, general capex, etc. Within that subsection you have Purchase/sale of business, net. You want to see a growing company making small acquisitions, but Sunrun has a large and growing sale of business/fixed assets.
I brought this to my friend who is far more versed in financial statements than I am. His response was, "it’s bs for that company they are selling assets to try and stay alive."
Also, their balance sheet. 1B in cash on hand vs almost 7B in debt. How do they pay that off if they can't break even and make money? They raise capital by issuing shares, further diluting your share of the company and lowering the stock price. like they've been doing since 2015. From 101M share float to now 213M share float - meaning if you had owned this company in 2015, the percentage of the company you now own is less than half of what it was.
The play: shorting shares of RUN.
✅Take Profit 1: $14.06
✅Take Profit 2: $8.81
✅Take profit 3: $4.81
🛑Stop Loss: $34.64
Short
