Shoals Technologies Group, Inc.

SHLS Details

Shoals Technologies Group, Inc. (NASDAQ: SHLS) provides an electrical balance of system solutions for solar energy projects in the US. Primarily, it sells its products to engineering, procurement, and construction firms that build solar energy projects.

Result Performance – For the First Quarter Ended 31 March 2021 – (Q1FY21)

• Uptick in Revenues: For the first quarter ended 31 March 2021, the revenues of the company reported at $45.6 million, an increase of 12% YoY, led by a 46% YoY rise in system solutions revenues which were partly nullified by a fall in components revenues. The rise in system solutions revenues reflects significant demand for the company’s combine-as-you-go system. In addition, the sale of system solutions represented 73% of revenues over 56% in pcp.
  

• Profitability Growth: The gross profit grew 32% YoY to $18.8 million and the gross margin increased by 635 bps to 41.2% from 34.8% in pcp. Adjusted EBITDA grew 17% YoY to $14.1 million. Further, income from operations was $9.9 million over $9.6 million, up 3% YoY.

• Impact on Net Income: Meanwhile, net loss was $8.3 million, over net income of $9.3 million in pcp. The decrease in net income was due to a $16.0 million charge reported in the first quarter in relation with an early repayment of a portion of its term loan facility.

Key Data (Source: Company Reports) 

Risks:

The financial performance of the company depends on the demand for solar energy projects. Further, the company is exposed to industry policies and regulations, and any subsequent changes, that may present technical, regulatory, and economic barriers to the purchase and use of solar energy systems. Also, the viability and demand for solar energy and the demand for the products are impacted by many factors outside of control, which makes it difficult to predict future prospects.

Outlook:

Amid current business conditions, business trends, and other factors, the company expects revenues to be in the ambit of $230- $240 million, up 31.0% to 36.7% YoY, adjusted EBITDA to be in the ambit of $75-$80 million, and adjusted net income between $47-$51 million. Also, the company forecasts ~45% of its revenues to be recorded in the H1FY21, using the midpoint of guidance. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

Over the last one month, the stock was up by ~+23.23% while, over the last three months, and the stock was up by ~+1.704%. The stock is trading above the average price of the 52-week low-high range of $20.94-$44.04, respectively.

We have applied an EV/Sales based relative valuation (on an illustrative basis) and there are expectations that the stock price might witness a fall of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering negative ROIC in Q1FY21 from positive ROIC in Q4FY20.

Considering aforesaid facts, current trading levels, associated risks, we suggest Investors to Book Profit and hence we give a ‘Sell’ recommendation on the stock at the current market price of $36.23 per share as on 10:45 PM (GMT+08:00 Australia Western Time) as on 8^th July 2021.

Daily Technical Analysis Chart

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.