Is Sunrun Inc. (RUN) the Best Small-Cap Stock to Buy Now?

Sunrun Inc. (RUN) has been making waves in the renewable energy sector, particularly in the residential solar market. As a small-cap stock, RUN has the potential to offer significant growth and returns for investors. However, before making an investment decision, it's essential to consider the company's financial performance, risks, and challenges. This article will delve into these aspects to help investors determine if RUN is the best small-cap stock to buy now.



Financial Performance and Growth

Sunrun's revenue growth has been impressive, with a compound annual growth rate (CAGR) of 25.3% from 2015 to 2024. However, in 2024, revenue decreased by 9.83% to $2.04 billion compared to the previous year. This decline may be due to market conditions or internal factors, and investors should analyze the reasons behind this drop. Despite this setback, Sunrun's revenue growth has been strong, indicating the company's potential for future growth.



Sunrun has reported losses in recent years, with a net loss of -$2.85 billion in 2024, which is 77.4% more than in 2023. This indicates that the company is still in a growth phase and has not yet achieved profitability. However, Sunrun's losses may be attributed to increased competition, regulatory changes, and higher costs associated with raw materials, labor, and other expenses. Investors should compare this with the industry average and peer performance to assess if this is typical for the industry or if Sunrun is underperforming.

Cash Flow and Profitability Metrics

Sunrun generated positive cash flow of $34 million in Q4 2024 after safe harbor equipment purchases, marking the third consecutive quarter of positive cash generation. This is a positive sign for investors, as it indicates that the company is generating cash from its operations. Comparing this with industry averages and peer performance can help investors determine if Sunrun is performing well in this area.

Sunrun's gross margin was 28.5% in 2024, which is lower than the industry average of 35.7%. This suggests that Sunrun may have higher production costs or lower pricing compared to its peers. Investors should analyze the reasons behind this difference and assess if it is a temporary or long-term issue.

Risks and Challenges

Sunrun faces several primary risks and challenges as a small-cap stock in the solar energy industry. These include market volatility and unpredictability, seasonality, competition, regulatory risks, and dependence on a single product/service. To mitigate these risks, investors can employ diversification, position sizing, regularly review and rebalance their portfolios, stay informed, and consider ETFs and index funds.



Conclusion

Sunrun Inc. (RUN) has shown strong revenue growth and positive cash flow, indicating its potential for future growth. However, the company's profitability and gross margin metrics suggest that there may be room for improvement. Investors should consider the company's risks and challenges and employ diversification strategies to mitigate these risks. By analyzing Sunrun's financial performance, risks, and challenges, investors can make an informed decision about whether RUN is the best small-cap stock to buy now.