Solar stock Shoals Technologies is in the high end of a 5% buy zone of a choppy base, after a recent positive earnings report. This solar stock is today's IBD 50 Stocks to Watch pick.
Shoals Technologies got a boost from the recently passed Inflation Reduction Act, which allocates billions into the domestic clean energy industry.
Shoals holds the third spot out of 22 stocks in the solar energy industry group, which ranks third out of 197 IBD groups. The group's high ranking earned it an A+ Group Relative Strength Rating according to the IBD Stock Checkup.
Shoals is a leader in electrical balance of systems (EBOS), which solar systems and storage companies use, as well as battery storage and electric vehicle charging infrastructure. The company currently hold 20 U.S. patents.
It has manufacturing facilities in Portland, Tenn., and Muscle Shoals, Ala. Shoals partners in a Tennessee-based project with Volkswagen as its solar partner for VW's overall carbon reduction and energy strategy. The company also partners with Troy, Ind.-based Burns & McDonnell to power a solar farm that generates enough electricity to power more than 12,000 households per year.
Shoals has three projects in Australia, including the largest solar project in the country. The solar plant produces enough electricity to power more than 115,000 New South Wales homes.
Solar Stock In The Buy Zone Of A Base
Shoals gapped up 21.9% in heavy volume after a positive Q3 earnings report in mid-November and hit the 28.57 buy point of a consolidating base. Shares late Thursday were above the upper limit of the buy zone, which goes to 30.
Shares are still about 20% off the 52-week high and off its all-time highs from early 2021. The solar stock started trading Jan. 27, 2021.
Shoals has a high 98 Relative Strength Rating, meaning it has outperformed 98% of stocks in the IBD database. Its relative strength line is at a new high, as indicated by a blue dot on the weekly MarketSmith chart.
Q3 Numbers Beat Across The Board
The company beat Q3 EPS and sales numbers when it reported Nov. 14. Gross margin gained more than 330 basis points from the prior year's Q3.
"Demand for our products has continued to grow faster than the overall market, which is underscored by the 74% year-over-year increase in our backlog and awarded orders this quarter," said Shoal's CEO Jason Whitaker.
Quarterly EPS hit its highest level of 10 cents since going public. Analysts are projecting 41% annual EPS growth in 2022, jumping to 110% in 2023.
Quarterly sales growth has been erratic, ranging from 23% to 52% in the latest three quarters, with its highest sales growth coming in Q3.
Shoals has a 96 Composite Rating and a 91 EPS Rating.
Mutual Funds Find Solar Stock Attractive
Mutual funds own 82% of the solar stock, with the number of funds owning shares increasing. In September 506 funds held its shares, up from 450 in June and 407 in March.
The CAN SLIM investing strategy looks for increasing institutional support because it shows funds are committing to the stock.
