3 Reasons to Avoid SHLS and 1 Stock to Buy Instead

Yahoo

28-05-2025

Although the S&P 500 is down 1.9% over the past six months, Shoals's stock price has fallen further to $4.69, losing shareholders 10.2% of their capital. This might have investors contemplating their next move.
Is there a buying opportunity in Shoals, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it's free.
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why SHLS doesn't excite us and a stock we'd rather own.
Investors interested in Renewable Energy companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Shoals's future revenue streams.
Shoals's backlog came in at $645.1 million in the latest quarter, and over the last two years, its year-on-year growth averaged 2.7%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders.
We track the long-term change in earnings per share (EPS) because it highlights whether a company's growth is profitable.
Shoals's full-year EPS dropped 8.3%, or 2% annually, over the last four years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Shoals's low margin of safety could leave its stock price susceptible to large downswings.
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company's ROIC is what often surprises the market and moves the stock price. Unfortunately, Shoals's ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Shoals's business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 11× forward P/E (or $4.69 per share). While this valuation is reasonable, we don't really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.
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