diff --git a/.gitignore b/.gitignore
index 5ebab51a2..34ba5d5a9 100644
--- a/.gitignore
+++ b/.gitignore
@@ -65,3 +65,7 @@ tmp/
 
 # scenario tester debugging output
 tests/scenarios/output/
+
+# Sys files
+.DS_Store
+*.swp
diff --git a/packages/compat/src/synthesize-template-only-components.ts b/packages/compat/src/synthesize-template-only-components.ts
index bfd0ed868..41f750eff 100644
--- a/packages/compat/src/synthesize-template-only-components.ts
+++ b/packages/compat/src/synthesize-template-only-components.ts
@@ -7,24 +7,26 @@ import { remove, outputFileSync, pathExistsSync } from 'fs-extra';
 const source = `import templateOnlyComponent from '@ember/component/template-only';
 export default templateOnlyComponent();`;
 
-const templateExtension = '.hbs';
-
 const jsExtensions = ['.js', '.ts', '.mjs', '.mts'];
 
 export default class SynthesizeTemplateOnlyComponents extends Plugin {
   private emitted = new Set() as Set<string>;
+  private allowedPaths: string[];
+  private templateExtensions: string[];
 
-  constructor(tree: Node, private allowedPaths: string[]) {
+  constructor(tree: Node, params: { allowedPaths: string[]; templateExtensions: string[] }) {
     super([tree], {
-      annotation: `synthesize-template-only-components:${allowedPaths.join(':')}`,
+      annotation: `synthesize-template-only-components:${params.allowedPaths.join(':')}`,
       persistentOutput: true,
       needsCache: false,
     });
+    this.allowedPaths = params.allowedPaths;
+    this.templateExtensions = params.templateExtensions;
   }
 
   async build() {
     for (let dir of this.allowedPaths) {
-      let { needed, seen } = crawl(join(this.inputPaths[0], dir));
+      let { needed, seen } = this.crawl(join(this.inputPaths[0], dir));
       for (let file of needed) {
         let fullName = join(this.outputPath, dir, file);
         if (seen.has(file)) {
@@ -53,22 +55,24 @@ export default class SynthesizeTemplateOnlyComponents extends Plugin {
       this.emitted.delete(filename);
     }
   }
-}
 
-function crawl(dir: string) {
-  const needed = new Set<string>();
-  const seen = new Set<string>();
-  if (pathExistsSync(dir)) {
-    for (let file of walkSync(dir, { directories: false })) {
-      if (file.endsWith(templateExtension)) {
-        needed.add(file.slice(0, -1 * templateExtension.length));
-      } else {
-        const jsExtension = jsExtensions.find(ext => file.endsWith(ext));
-        if (jsExtension) {
-          seen.add(file.slice(0, -1 * jsExtension.length));
+  private crawl(dir: string) {
+    const needed = new Set<string>();
+    const seen = new Set<string>();
+    if (pathExistsSync(dir)) {
+      for (let file of walkSync(dir, { directories: false })) {
+        for (const templateExtension of this.templateExtensions) {
+          if (file.endsWith(templateExtension)) {
+            needed.add(file.slice(0, -1 * templateExtension.length));
+          } else {
+            const jsExtension = jsExtensions.find(ext => file.endsWith(ext));
+            if (jsExtension) {
+              seen.add(file.slice(0, -1 * jsExtension.length));
+            }
+          }
         }
       }
     }
+    return { needed, seen };
   }
-  return { needed, seen };
 }
diff --git a/packages/compat/src/v1-addon.ts b/packages/compat/src/v1-addon.ts
index c385133a8..37c31f3d0 100644
--- a/packages/compat/src/v1-addon.ts
+++ b/packages/compat/src/v1-addon.ts
@@ -724,7 +724,13 @@ export default class V1Addon {
     if (!tree) {
       return;
     }
-    let templateOnlyComponents: Node = new SynthesizeTemplateOnlyComponents(tree, ['components']);
+    let templateOnlyComponents: Node = new SynthesizeTemplateOnlyComponents(tree, {
+      allowedPaths: ['components'],
+
+      // if an addon has custom AST transforms, stage1 can rewrite .hbs to
+      // .hbs.js
+      templateExtensions: ['.hbs', '.hbs.js'],
+    });
     if (!this.addonOptions.staticAddonTrees) {
       let filenames: string[] = [];
       let templateOnlyComponentNames: string[] = [];
diff --git a/packages/compat/src/v1-app.ts b/packages/compat/src/v1-app.ts
index eb6e86537..7458ee4ed 100644
--- a/packages/compat/src/v1-app.ts
+++ b/packages/compat/src/v1-app.ts
@@ -657,7 +657,9 @@ export default class V1App {
 
     let trees: Node[] = [];
     trees.push(appTree);
-    trees.push(new SynthesizeTemplateOnlyComponents(appTree, ['components']));
+    trees.push(
+      new SynthesizeTemplateOnlyComponents(appTree, { allowedPaths: ['components'], templateExtensions: ['.hbs'] })
+    );
 
     trees.push(configReplaced);
     if (testsTree) {
diff --git a/tests/scenarios/stage1-test.ts b/tests/scenarios/stage1-test.ts
index 47144b99b..83cd9ac03 100644
--- a/tests/scenarios/stage1-test.ts
+++ b/tests/scenarios/stage1-test.ts
@@ -6,6 +6,8 @@ import { loadFromFixtureData } from './helpers';
 import { dummyAppScenarios, baseAddon, appScenarios } from './scenarios';
 import { PreparedApp } from 'scenario-tester';
 import QUnit from 'qunit';
+import { expectFilesAt, ExpectFile } from '@embroider/test-support';
+
 const { module: Qmodule, test } = QUnit;
 
 appScenarios
@@ -128,6 +130,14 @@ appScenarios
     merge(addon.files, {
       addon: {
         components: {
+          'template-only.hbs': `<div data-test="template-only"></div>`,
+          'colocated.js': `
+            import Component from '@glimmer/component';
+            export default class extends Component {
+              identifier = "i-am-colocated";
+            }
+          `,
+          'colocated.hbs': `<div data-test={{this.identifier}}></div>`,
           'has-inline-template.js': `
             import Component from '@ember/component';
             import hbs from 'htmlbars-inline-precompile';
@@ -160,23 +170,45 @@ appScenarios
         workspaceDir = fs.readFileSync(join(app.dir, 'dist', '.stage1-output'), 'utf8');
       });
 
-      test('component with inline template', function (assert) {
-        let fileContents = fs.readFileSync(
-          join(workspaceDir, 'node_modules/my-addon/components/has-inline-template.js')
-        );
-        assert.ok(
-          fileContents.includes('hbs`<div class={{embroider-sample-transforms-result}}>Inline</div>'),
+      let expectFile: ExpectFile;
+      hooks.beforeEach(assert => {
+        expectFile = expectFilesAt(workspaceDir, { qunit: assert });
+      });
+
+      test('component with inline template', function () {
+        let file = expectFile('node_modules/my-addon/components/has-inline-template.js');
+
+        file.matches(
+          'hbs`<div class={{embroider-sample-transforms-result}}>Inline</div>',
           'tagged template is still hbs and custom transforms have run'
         );
-        assert.ok(
-          /hbs\(["']<div class={{embroider-sample-transforms-result}}>Extra<\/div>["']\)/.test(fileContents.toString()),
+
+        file.matches(
+          /hbs\(["']<div class={{embroider-sample-transforms-result}}>Extra<\/div>["']\)/,
           'called template is still hbs and custom transforms have run'
         );
-        assert.ok(
-          /<span>{{macroDependencySatisfies ['"]ember-source['"] ['"]>3['"]}}<\/span>/.test(fileContents.toString()),
+
+        file.matches(
+          /<span>{{macroDependencySatisfies ['"]ember-source['"] ['"]>3['"]}}<\/span>/,
           'template macros have not run'
         );
       });
+
+      test('component with colocated template', function () {
+        // co-located pairs are left alone in stage1 because we deal with them
+        // in stage3
+        expectFile('node_modules/my-addon/components/colocated.js').matches('i-am-colocated');
+        expectFile('node_modules/my-addon/components/colocated.hbs.js').exists();
+      });
+
+      test('template-only component', function () {
+        expectFile('node_modules/my-addon/components/template-only.js').matches(
+          'export default templateOnlyComponent()'
+        );
+        expectFile('node_modules/my-addon/components/template-only.hbs.js').matches(
+          'export default precompileTemplate'
+        );
+      });
     });
   });