We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Shoals’s backlog reached $645.1 million in the latest quarter and averaged 2.7% year-on-year growth over the last two years. Because this number is in line with its revenue growth, we can see the company effectively balanced its new order intake and fulfillment processes.

This quarter, Shoals’s revenue fell by 11.2% year on year to $80.63 million but beat Wall Street’s estimates by 8.6%. Company management is currently guiding for a 5.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 15.2% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.

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Operating Margin

Shoals has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Shoals’s operating margin decreased by 9.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Shoals generated an operating profit margin of 5.3%, down 7.4 percentage points year on year. Since Shoals’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Shoals’s EPS grew at a weak 2.5% compounded annual growth rate over the last five years, lower than its 20.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of Shoals’s earnings can give us a better understanding of its performance. As we mentioned earlier, Shoals’s operating margin declined by 9.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Shoals, its two-year annual EPS declines of 18.7% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, Shoals reported EPS at $0.03, down from $0.07 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Shoals to perform poorly. Analysts forecast its full-year EPS of $0.30 will hit $0.43.

Key Takeaways from Shoals’s Q1 Results

We were impressed by how significantly Shoals blew past analysts’ revenue and EBITDA expectations this quarter. We were also glad its revenue guidance for next quarter and its full-year EBITDA guidance trumped Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 5.8% to $3.99 immediately after reporting.

Indeed, Shoals had a rock-solid quarterly earnings result, but is this stock a good investment here? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free .