Symbotic (NASDAQ: SYM) has had an eye-popping year so far in 2023, riding the tailwinds of a broader rally in technology stocks and the fervor surrounding artificial intelligence (AI). Shares of the AI and warehouse automation specialist are up more than 210% so far this year, far outpacing the gains of the S&P 500. This is in stark contrast to its inaugural six months in 2022, when the stock tumbled more than 40%.
The rally this year has come in the wake of the company's robust financial results over the past two quarters. The growing adoption of Symbotic's warehouse automation solutions and the improvement of its financial results have increased investor confidence that the company is headed in the right direction.
What does this mean for investors who sat out Symbotic's recent blistering rally? Should they buy the stock in the hopes of additional upside or move on to greener pastures? Let's take a look.
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What is Symbotic, and what does it do?
Symbotic is on a mission to improve the supply chain for retailers everywhere. The company's AI-fueled system automates the processing of pallets and cases, moving them to and from trucks and around large warehouses and distribution centers. Symbotic counts some of the world's largest retailers as customers, including Walmart, Target, Albertsons, and closely held C&S Wholesale Grocers.
The company's AI-powered automation and comprehensive software architecture offer a turn-key, end-to-end solution for warehouse logistics, with an army of integrated robots to make small work of big inventories. Furthermore, its AI-fueled software optimizes traffic and storage, fitting more inventory in less space.
This helps reduce labor costs, increases efficiency, and lowers transportation and operating expenses. The resulting savings help pay for the system in short order, saving retailers millions of dollars each year.
Being a leader in a hot market can be lucrative. For the fiscal 2023 third quarter (ended June 24), Symbotic revenue surged 78% from a year earlier to $312 million. While its net losses continue, the company has generated positive operating cash flow in each of the past three quarters, suggesting it's on the road to sustained profitability.
What could drive Symbotic stock higher?
The changing retail landscape -- including the melding of physical retail, e-commerce, and omnichannel strategies -- increases the complexity of logistics, while labor costs are increasing exponentially. This gives retailers of all kinds the incentive to optimize their operations to save money, ultimately dropping more profit to the bottom line. Symbotic's modular offerings, AI-powered software, and fully autonomous robots provide the cure for what ails them.
Symbotic is currently focused on the U.S. general merchandise and food and grocery categories, representing a $144 billion opportunity. But that's just the beginning. The company has its eye on apparel, consumer-packaged goods, home improvement, auto parts, third-party logistics, and international expansion, which will ultimately increase its total addressable market to $432 billion.
How to approach Symbotic stock now
As mentioned, Symbotic isn't yet profitable. Surprisingly, the stock is currently selling for just 2.3 times sales and 1.3 times forward sales, making it a bargain. The stock is well off its highs from earlier this year, as its growth is expected to slow to 57% in 2024, down from triple-digit percentage growth so far this year.
This stock has sailed under much of Wall Street's radar thus far. Yet, of the 13 analysts who follow the stock, nine rate it a buy or strong buy, and not a single one rates it a sell.
Symbotic's small size and lack of profitability make it a risky proposition. That said, the retail environment will only get more challenging, and demand for Symbotic systems will likely increase. Savvy investors with the stomach for some gut-churning volatility should consider buying now -- adding a small position as part of a balanced portfolio -- particularly in light of Symbotic's promising long-term prospects.
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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.
