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Decoding Sunrun Inc (RUN)'s Performance Potential: A Deep Dive into Key Metrics

Long-established in the Semiconductors industry, Sunrun Inc (NASDAQ:RUN) has enjoyed a stellar reputation. It has recently witnessed a surge of 9.18%, juxtaposed with a three-month change of -24.45%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Sunrun Inc.

Decoding Sunrun Inc (RUN)'s Performance Potential: A Deep Dive into Key Metrics
Decoding Sunrun Inc (RUN)'s Performance Potential: A Deep Dive into Key Metrics

Deciphering the GF Score

The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.

Based on the above method, GuruFocus assigned Sunrun Inc the GF Score of 66 out of 100, which signals poor future outperformance potential.

Understanding Sunrun Inc's Business

Sunrun Inc, with a market cap of $3.36 billion, is engaged in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. The company acquires customers directly and through relationships with various solar and strategic partners. The solar systems are constructed either by Sunrun or by Sunrun's partners and are owned by the company. Sunrun's customers typically enter into 20- to 25-year agreements to utilize its solar energy system. The company also sells solar energy systems and products, such as panels and racking, and solar leads generated to customers. With sales of $2.42 billion, the company's operating margin stands at -31.35%.

Decoding Sunrun Inc (RUN)'s Performance Potential: A Deep Dive into Key Metrics
Decoding Sunrun Inc (RUN)'s Performance Potential: A Deep Dive into Key Metrics

Financial Strength Breakdown

Sunrun Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0 positions it worse than 0% of 639 companies in the Semiconductors industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.

The company's Altman Z-Scoreis just 0.21, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.07 indicates a struggle in handling existing debt levels.

Profitability Breakdown

Sunrun Inc's low Profitability rank can also raise warning signals. Sunrun Inc's Operating Margin has declined over the past five years ((-124,879.00%)), as shown by the following data: 2018: -16.04; 2019: -25.13; 2020: -50.44; 2021: -41.38; 2022: -28.53. Additionally, Sunrun Inc's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 29.61; 2019: 24.78; 2020: 19.37; 2021: 15.19; 2022: 12.87. This trend underscores the company's struggles to convert its revenue into profits.

Next Steps

Given Sunrun Inc's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While the company has a strong reputation in the Semiconductors industry, these metrics suggest that it may face significant challenges in maintaining its historical performance. Investors should consider these factors when making investment decisions.

GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen

This article first appeared on GuruFocus.