5 Best Growth Stocks Under $25

4. Sunrun Inc. (NASDAQ:RUN)

Number of Hedge Fund Holders: 27

Share Price as of July 26: $19.86

P/E Ratio as of July 26: 198.45

Next on our list of the best growth stocks is Sunrun Inc. (NASDAQ:RUN), a California-based company providing residential solar energy systems in the United States. According to Morgan Stanley analyst Andrew Percoco, Sunrun Inc. (NASDAQ:RUN) will likely reach the midpoint of its target for 270-290 MW installations in Q2. Additionally, Percoco noted a positive update on the demand outlook for Sunrun Shift, which could lead to increased market share in California and potentially result in a positive revision of the full-year guidance. Morgan Stanley named Sunrun Inc. (NASDAQ:RUN) as one of the top solar plays ahead of the Q2 earnings season.

According to Insider Monkey’s first quarter database, 27 hedge funds were bullish on Sunrun Inc. (NASDAQ:RUN), compared to 39 funds in the earlier quarter. William B. Gray’s Orbis Investment Management is the leading stakeholder of the company, with 13.16 million shares worth $265.3 million.

Here is what Horizon Kinetics has to say about Sunrun Inc. (NASDAQ:RUN) in its Q2 2021 investor letter:

“What this table did not cover is valuation. What’s expensive, what’s cheap? A good business that is too expensive is not a good investment. The most expensive business on the table is Sunrun. Sunrun is the nation’s largest residential rooftop solar panel system seller/installer. Sunrun’s valuation might also shed Thumbnail valuation.

To start at the top of the income statement, Sunrun shares trade at 10.3x revenues. The most profitable company in the S&P 500, Microsoft, trades at 13x revenues. Sunrun operates at a loss. Obviously, not only is tremendous growth anticipated, but tremendous profitability, too.

Let’s simply accept that investors have correctly anticipated Sunrun’s future success and make that the starting point for a valuation exercise.

If, 10 years from now, Sunrun is ultimately valued at 25x net income, and if today’s $9.5 billion valuation is appropriate, that would require $380 million of net income ($9,500 million ÷ 25).

Let’s say Sunrun will have the same net profit margin as the average S&P 500 company, which is 10%. That means it would need $3,800 million of sales to generate that level of earnings ($380 mill ÷ 10%).

Since sales are now $920 million, they would have to rise by 4.1x in the next 10 years. That would require annual sales growth of 15.2%. (Click here to read full text)