Solar energy systems company Shoals (NASDAQ: SHLS) reported Q2 CY2026 results exceeding the market’s revenue expectations, with sales up 47.4% year on year to $163.4 million. The company expects next quarter’s revenue to be around $160 million, close to analysts’ estimates. Its non-GAAP profit of $0.12 per share was 20.3% above analysts’ consensus estimates.

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“The year is progressing well, with second quarter revenue and Adjusted EBITDA within our expected range. The market remains resilient as evidenced by our record backlog and awarded orders of $801.4 million. We have completed the move into our new facility and are steadily making progress towards improving productivity,” said Brandon Moss, CEO of Shoals.

Company Overview

Started in Huntsville, Alabama, Shoals (NASDAQ: SHLS) designs and manufactures products that make solar energy systems work more efficiently.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Shoals grew its sales at an incredible 24.5% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Shoals’s annualized revenue growth of 13.7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

Shoals also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Shoals’s backlog reached $801.4 million in the latest quarter and averaged 12.2% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies Shoals was operating efficiently but raises questions about the health of its sales pipeline.

This quarter, Shoals reported magnificent year-on-year revenue growth of 47.4%, and its $163.4 million of revenue beat Wall Street’s estimates by 2.1%. Company management is currently guiding for a 17.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.7% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is commendable and suggests the market is forecasting success for its products and services.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Shoals has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.9%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Shoals’s operating margin decreased by 3.5 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.

In Q2, Shoals generated an operating margin profit margin of 11.5%, down 3 percentage points year on year. Since Shoals’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Shoals’s EPS grew at an unimpressive 6.7% compounded annual growth rate over the last five years, lower than its 24.5% 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 3.5 percentage points over the last five years. Its share count also grew by 1.9%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

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 8.5% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q2, Shoals reported adjusted EPS of $0.12, up from $0.10 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Shoals’s full-year EPS to grow 17.5% from $0.41 to $0.48.

Key Takeaways from Shoals’s Q2 Results

It was good to see Shoals beat analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance slightly missed. Overall, we think this was a mixed quarter with some key metrics above expectations. The stock remained flat at $9.28 immediately after reporting.

So do we think Shoals is an attractive buy at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here (it’s free).