Shoals Technologies (NASDAQ: SHLS), a pivotal player in the rapidly growing solar and electric vehicle (EV) industries, exhibits a promising long-term investment profile due to its innovative products, strong market presence, and robust financial health.
Founded in 1996 and based in Portland, Tennessee, Shoals has recently announced a strategic $80 million investment to expand its manufacturing operations in Sumner County, indicating its readiness to scale operations to meet escalating demands.
Shoals Technologies at a Glance
Shoals Technologies, primarily serving the solar, EV, and battery energy markets, garners the majority of its revenue from the U.S., complemented by its growing international footprint in Europe, South America, and Asia.
The company’s revenue streams are predominantly from system solutions, which account for 78%, and components, making up 22% of its revenue.
The Concept of Proxy Investing
Proxy investing involves capitalizing on ancillary markets related to a primary trend. For example, during the California Gold Rush, businesses like Levis Strauss thrived by providing necessary goods and services, such as durable clothing, to gold miners.
Similarly, Shoals Technologies is positioned as a proxy to the burgeoning solar and EV industries.
Innovative Solutions by Shoals
Shoals Technologies offers EBOS (electrical balance of system) solutions crucial for solar and EV projects, facilitating the transfer of generated power to the grid. Traditional EBOS systems, while inexpensive, often incur high installation costs and present safety risks due to complex installation requirements and extensive wiring.
Addressing these challenges, Shoals introduced a transformative product line featuring big lead assembly and plug-and-play connectors, which reduce installation costs by 43%, material costs by 20%, and simplify the installation process, making it feasible for general laborers.
This innovation has significantly increased Shoals’ market share in the U.S., from 7% in 2017 to an expected 60% beyond 2021.
Expansion and Capacity
In response to rising demand, Shoals completed the expansion of its third manufacturing facility in Tennessee in November 2023, boosting its capacity from 20 GW to 35 GW, with potential to extend to 42 GW. This expansion underpins Shoals’ preparedness to meet demand through 2025 and beyond.
Unique Offerings in the EV Space
In the EV sector, Shoals stands out with its patented EV-BLA system, a cable bus solution that simplifies installation by allowing above-ground setup, thereby reducing both installation and maintenance costs compared to traditional underground wiring.
Other innovations include the quick connect base, which minimizes cabling and interconnection expenses, and protective raceways that are compatible with conventional cabling and the EV BLA system.
Market Competition and Position
Despite the lack of publicly available financial data on its main competitors, Shoals has demonstrated its market dominance, with its products being used in over 50% of U.S. solar projects in 2022. This widespread adoption by top solar EPCs highlights the trust and reliability that large firms place in Shoals’ solutions.
Financial Performance and Future Outlook
Shoals reported a 49.5% increase in revenue for FY2023, reaching $488.9 million, with an impressive adjusted gross profit margin of 47%.
The company’s financial success is attributed to its strategic position within two high-growth sectors. For FY2024, Shoals projects revenues between $480 million and $520 million, confidently continuing its growth trajectory supported by substantial orders and a strong order backlog.
Investment Potential
The company’s strong patent portfolio, innovative product lines, and strategic manufacturing expansions position it well to capitalize on the growing solar and EV markets.
Given its strong financial performance, strategic market positioning, and innovative product offerings, Shoals Technologies presents a compelling long-term investment opportunity.
As the solar and EV sectors continue to expand, Shoals is expected to benefit substantially, reinforcing its status as a leading proxy investment in these high-growth industries.
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Kris is a finance consultant, content marketer, and speaker specializing in helping brands and business owners navigate complex concepts and decisions. Since earning her Finance and Accounting degree, Kris has spent over half a decade writing about financial and technological concerns of brands spanning different life cycles.