Contrarian Investors Should Look Into Shoals Technologies Group Inc

Just like almost everything else in the current bear market, growth segments like green energy stocks have significantly cooled down since their initial thrust in January 2021 after Joe Biden became president.

While Biden's administration has been pushing the green energy theme, investor interest in solar power stocks has faded. Invesco Solar ETF (NYSE:TAN) has declined by 44% from its January 2021 high.

One victim of the green energy stock selling is Shoals Technologies Group Inc (NASDAQ:SHLS). SHLS stock is down by 22% in 2022 and down by 37% over the past year. While there’s no guarantee the country’s push toward green energy will continue, the sector offers exciting opportunities.

Shoals Technologies Group Inc develops electrical balance of systems (EBOS) components for solar energy projects. The components allow solar-produced electricity to safely flow from the source (solar panels) to the inverter, to the power grid. (Source: “Corporate Overview,” Shoals Technologies Group Inc, last accessed June 23, 2022.)

The company has been targeting several growth markets, including ground-mounted solar projects (its primary market), battery storage (new and retrofits), replacements of existing solar fleets, and EBOS components for electric vehicle (EV) chargers. (Source: "Shoals Technologies Group, Inc. Q1 2022 Investor Presentation," Shoals Technologies Group Inc, May 16, 2022.)

The EV exposure is intriguing, given the expected significant buildup of that market.

Although the company has been delivering high revenue growth and is profitable, Shoals Technologies stock has traded erratically, which I view as a contrarian opportunity.

SHLS Stock Could Be Set for Significant Gains

Shoals Technologies stock traded at a record $44.04 on February 22, 2021. That was followed by a breakdown in December 2021 that has extended into 2022.

The selling followed a multiple-top formation in which shares of Shoals Technologies Group Inc failed to break above key resistance at $40.00. This level represents the upper technical target.

SHLS stock plummeted to a record low of $9.58 on April 28, which was excessive. This triggered a 97% rally, which reclaimed the 50-day moving average.

Shares of Shoals Technologies Group Inc recently touched their 200-day moving average of $21.42 but failed to hold. This level is the next target, followed by the previous channel support level around $25.00 and the key resistance level at $40.00.

While the recent buying is encouraging, Shoals Technologies stock could revisit downside congestion around $15.00. I would consider a move toward $15.00 and below as good entry points.

Chart courtesy of StockCharts.com

Analyst Take

Institutional investors and insiders have both been scooping up shares of Shoals Technologies Group Inc. About 301 institutions hold the majority of the float and outstanding shares. (Source: “Shoals Technologies Group, Inc. (SHLS),” Yahoo! Finance, last accessed June 24, 2022.)

Insiders have also actively bought SHLS stock. Over the last six months, insiders bought a net 178,608 shares.

Shoals Technologies stock is worth a look, but investors have to be open to its high volatility. Should the green energy market continue to expand, SHLS stockholders should benefit.