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I don’t think there’s any argument that Sunrun (NASDAQ:RUN) is expensive. Up 278% year-to-date through Nov. 10, Sunrun stock is trading at eight times sales and almost 11 times book.

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InvestorPlace’s Muslim Farooque recently discussed the bear case for Sunrun, placing a major emphasis on its completed merger with Vivint Solar. For my colleague, it’s not a matter of when Tesla (NASDAQ:TSLA) gets serious about solar, but when.

“If Tesla continues on the path towards building its solar business, it is likely to take a significant chunk of the market share from Sunrun,” Farooque wrote on Oct. 27.

“Hence, for Sunrun, it is imperative to keep innovating and finding solutions that appeal to its customers. It also needs to work on developing awareness of its brand to curb its marketing expenses. Nonetheless, it’s tough to invest in Sunrun stock at this time.”

Fair enough. I’m a Tesla fan myself. However, if he thinks Tesla’s just going to walk all over Sunrun/Vivint’s market share, he’s got another thing coming.

Here’s why.

Tesla’s Not Exactly Hitting a Solar Home Run

Tesla’s revenue from energy generation and storage in the nine months ended Sep. 30 was $1.24 billion, 13.4% higher than a year earlier. However, most of that revenue came from its Powerwall and Megapack energy storage products, not from its solar roof installations.

Its third-quarter 2020 10-Q points out that year-to-date, it deployed 1.44 gigawatt-hours (GWh) of energy storage products and 119 megawatts (MW) of solar energy systems. Let’s consider what that might mean in terms of solar energy systems’ revenue so far in 2020.

Okay, so, 119MW equals 119,000 kilowatts (kW). In June, Tesla introduced new, competitive pricing to beat Sunrun and Vivint at its own game. Using its Extra Large system as the example price — it has the lowest price per kW at $30,000; $22,000 with the federal tax credit — I get 7,300 systems generating $219 million or 18% of its energy generation and storage revenue for the first nine months of the fiscal year.

Therefore, its solar systems accounted for just 1.1% of Tesla’s $20.8 billion in total revenue through the end of September.

How Did Sunrun Do?

At the end of September, Sunrun had cumulative MW’s deployed of 2,272. At the end of December 2019, it had cumulative MW’s deployed of 1,987, for a net addition of 285 MW in the first nine months of 2020.

Based on $601.8 million in revenue through Q3 2020, Sunrun generated about three times as much revenue from its solar energy systems as Tesla did. And that doesn’t even cover Vivint.

In the first six months of 2020, Vivint installed 99.7 MW’s of solar power through the end of June, generating $197.5 million in revenue. In Q3 2019, it installed 65.1 MWs of solar power. Assuming a 7% growth rate the increase in the first quarters of 2020 from the end of 2019, it would have installed approximately 70 MW’s for a total of 170 through the first nine months of 2020.

So, together Vivint and Sunrun installed approximately 455 MW’s of solar power through the end of September, almost three times higher than Tesla.

It’s True, Sunrun Stock Isn’t Cheap

As I said in the introduction, Sunrun’s stock isn’t cheap at the moment. And yes, both companies were losing money in 2020 before merging. However, as my InvestorPlace colleague, Mark Hake, recently discussed, the merged entity should have enough scale to get into the black soon.

Mark recommended that investors wait to hear what Sunrun’s outlook is for the combined company. Here’s what chief financial officer Tom VonReichbauer had to say in its third-quarter conference call.

“We expect to see continued growth and margin expansion in Q4. We expect total volumes pro forma for the Vivint Solar acquisition to increase over 10% sequentially to approximately 172 megawatts. We also expect to see continued improvements in our net customer margins to above $8,000 per leased customer,” VonReichbauer stated on Nov. 5.

“… With the operational efficiency improvements discussed earlier and the acquisition of Vivint Solar, we expect to enter 2021 with an improved cost structure and higher net customer values. In 2021. We expect to grow above market — above the long-term industry growth rates we’ve discussed in the past.”

As my colleague stated, Sunrun has more than its fair share of debt. However, by utilizing an expensive stock as currency for the acquisition, Vivint brings the kind of scale that makes the dilutive effect worthwhile.

You have to pay up for quality. Five years from now, I doubt you’ll remember you paid eight times sales.

RUN is a long-term buy.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.