Earnings

Comparing Sunrun Inc. (RUN) and Vivint Solar, Inc. (VSLR)

Sunrun Inc. (NASDAQ:RUN) shares are up more than 13.37% this year and recently decreased -0.50% or -$0.03 to settle at $6.02. Vivint Solar, Inc. (NYSE:VSLR), on the other hand, is up 39.22% year to date as of 11/20/2017. It currently trades at $3.55 and has returned -6.58% during the past week.

Sunrun Inc. (NASDAQ:RUN) and Vivint Solar, Inc. (NYSE:VSLR) are the two most active stocks in the Semiconductor – Specialized industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect RUN to grow earnings at a 19.50% annual rate over the next 5 years. Comparatively, VSLR is expected to grow at a -10.80% annual rate. All else equal, RUN’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. RUN’s ROI is -14.40% while VSLR has a ROI of -15.90%. The interpretation is that RUN’s business generates a higher return on investment than VSLR’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. RUN’s free cash flow (“FCF”) per share for the trailing twelve months was -2.13. Comparatively, VSLR’s free cash flow per share was -0.65. On a percent-of-sales basis, RUN’s free cash flow was -0.05% while VSLR converted -0.06% of its revenues into cash flow. This means that, for a given level of sales, RUN is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. RUN has a current ratio of 0.70 compared to 1.20 for VSLR. This means that VSLR can more easily cover its most immediate liabilities over the next twelve months. RUN’s debt-to-equity ratio is 1.69 versus a D/E of 1.53 for VSLR. RUN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

RUN trades at a forward P/E of 4.28, a P/B of 0.84, and a P/S of 1.27, compared to a P/B of 0.69, and a P/S of 1.67 for VSLR. RUN is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. RUN is currently priced at a -41.5% to its one-year price target of 10.29. Comparatively, VSLR is -34.26% relative to its price target of 5.40. This suggests that RUN is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.70 for RUN and 1.80 for VSLR, which implies that analysts are more bullish on the outlook for VSLR.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. RUN has a short ratio of 15.97 compared to a short interest of 13.25 for VSLR. This implies that the market is currently less bearish on the outlook for VSLR.

Summary

Vivint Solar, Inc. (NYSE:VSLR) beats Sunrun Inc. (NASDAQ:RUN) on a total of 6 of the 14 factors compared between the two stocks. VSLR is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, VSLR is the cheaper of the two stocks on an earnings and book value, Finally, VSLR has better sentiment signals based on short interest.

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