Shoals Technologies (NASDAQ:SHLS) has seen a successful public offering as investors like the prospects for solar suppliers and renewable energy at large. I like the business and the fact that it's solidly profitable, yet trading at over 30 times sales while near-term growth has essentially come to a standstill seems a bit too much, even as the company is very profitable already.
Solar Energy - EBOS Play
Shoals is a provider of electrical balance of system (EBOS) solutions for US solar energy projects. EBOS includes all components necessary to move the electricity produced from a panel to an inverter and ultimately to the grid. These components are mission-critical with high consequences of failure such as equipment damage, fire damage, and lost revenue being quite high.
Actual components include cable assemblies, combiners, disconnects, inline fuses, monitoring system, etc. The company generated most of its sales from complete EBOS systems yet individual components of the company are found in roughly half of all US energy solar systems. This integration, combined with quality components and innovative installation, provides the company with an edge.
To understand the role of EBOS which is mission-critical, the average cost of these components is equal to about 6% of the total solar energy project, yet the actual installation is quite time consuming as well as requiring licensed electricians which makes it quite expensive. By designing these components as plug-and-play, this improves reliability and helps avoid expensive installation crews, resulting in a lower total cost of installation even if the upfront costs are a bit higher.
IPO and Valuation Talks
Underwriters and management initially aimed to sell 70 million shares in a price range between $22 and $23 per share. Despite the fact that 61 million of these shares were offered by selling shareholders, pricing improved and was set at a
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