Sunrun (NASDAQ: RUN) stock price continued its sell-off as the ongoing bond rout irked investors. The shares, which peaked at $100.57 in 2021 have plunged by almost 90% to the current $11.3. This decline has brought the company’s market cap to $2.7 billion.
Clean energy bubble is burstingThere are increasing signs that the clean energy bubble is bursting even as the Biden administration invests billions in the sector. I recently wrote about Brookfield Renewable Energy and NextEra, two clean energy giants that have slumped recently.
At the same time, big oil companies like Shell and BP which invested billions of dollars in the sector are now pulling back. Plug Power, a company in hydrogen energy, has seen its shares plunge by more than 67% in the past 12 months.
Sunrun, a company in the solar energy industry, is also seeing its growth slow as interest rates surge. The 10-year bond yield has soared to 4.7%, the highest level since 2007 while the 30-year has surged to 4.8%.
Sunrun faces three major risks. First, the company’s growth seems to be slowing. Its revenue grew to $596 million in the last quarter, a 0.59% YoY increase even after its customers grew by 20% to over 864k.
Second, the rising interest rates are having a direct impact in its business. Its interest expense came in at $114.5 million last quarter. It has paid over $465 million in interest in the past four quarters.
The Fed has warned that rates could remain higher for longer, meaning that the company will continue seeing these outflows for a while. Notably, its short-term investments are not bringing in enough interest income. Sunrun had over $669 million in cash and investments and a short-term debt of $470 million. Its long-term debt stood at over $9.1 billion.
Finally, Sunrun is still highly overvalued despite the ongoing share price collapse. It has a PE multiple of 30.46x, higher than the S&P 500’s 18x.
Sunrun stock price forecast
The weekly chart shows that the Sunrun share price has been in a strong freefall in the past few months. Along the way, the stock has plunged below the 50-week and 100-week moving averages, meaning that bears are in control. The Relative Strength Index (RSI) has drifted downwards and formed a triangle pattern.
Most importantly, the Sunrun stock price has formed a falling wedge pattern, one of the most popular reversal signs. Therefore, the stock will likely remain in a downtrend for a while and then bounce back in the next few months.
If this happens, it could drop to the next support at $9 and then rebound. This bullish view is in line with what analysts at Guggenheim and Keybanc have recommended.
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