Symbotic(NASDAQ: SYM) quickly emerged as a leader in warehouse automation, combining industrial robotics with artificial intelligence (AI) to transform global supply chains. In many ways, the company's system could sell itself, considering its potential to increase efficiency and reduce costs for customers who adopt the technology.
While the company translated strong demand into impressive growth, shares have been under pressure with the market likely focusing on the stock's lofty valuation. On the other hand, volatility often creates opportunities.
Could Symbotic be a good pickup for your portfolio following a 45% decline from its 52-week high? Here's what you need to know.
A strong start to 2024
Symbotic's end-to-end automation solutions are deployed by large corporations including Walmart, Target, and Albertsons. These companies reaffirmed the platform's value proposition that leverages high-speed vision-enabled robots with specialized software to optimize inventory management and accelerate distribution.
The relationship with Walmart is unique, as the world's largest retailer is a major shareholder of Symbotic, holding a 13% stake, and moving to implement the platform across all of its 42 U.S. regional distribution centers.
While the Walmart partnership represents a concentration at nearly 88% of Symbotic's total revenue, it serves to highlight the growth potential for the next-generation technology.
Operating and financial trends at the start of 2024 have been solid. Symbotic last reported its fiscal second-quarter results (for the period ended March 30) with revenue of $424 million, up 59% year over year.
The increase was driven by progress on deploying 37 systems at various stages of development, up from 27 in the prior year quarter. A current backlog of $22.8 billion suggests a growth runway into 2025 and beyond as orders get fulfilled.
As the systems are completed, the related revenue shifts toward a recurring stream based on the software services at active sites. Recurring revenue climbed by 145% from Q2 2023, lifting margins and helping adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reach $21 million this quarter, reversing the $11 million loss in the period last year. The expectation is for profitability to continue climbing as the business scales.
Symbotic ended the quarter with $901 million in net cash as a strong point in the company's fundamental profile.
Image source: Getty Images.
Opportunity in warehouse-as-a-service
A key component of Symbotic's strategy is to expand its global footprint and diversify its customer base. That was part of the reason for the 2023 creation of GreenBox as a joint venture with the Japanese investment holding company SoftBank.
The idea is to offer an alternative solution for companies that could benefit from automating their warehouses but see the initial required upfront investment as cost-prohibitive.
In this case, GreenBox's "warehouse-as-a-service" model outsources logistics to Symbotic while customers simply pay a recurring subscription fee for the use of the technology. GreenBox signed its first customer and expects to recognize revenue from the deal into the third quarter as an incremental growth driver beyond the core direct-sales offering.
Further headlines of similar new customer wins or major project deployments should be positive for Symbotic stock.
What's next for Symbotic
Rising complexities related to a growing assortment of merchandise, more expensive labor, and the importance of distribution speed represent tailwinds for automation that Symbotic is positioned to capture.
That setup is captured in the current consensus. On average, Wall Street analysts forecast Symbotic revenue to more than double over the next two years from $1.77 billion in fiscal 2024 to $3.55 billion by fiscal 2026. The outlook for earnings is even stronger. For full year 2024, analysts estimate $0.03 per share, ramping up to $0.42 by 2025.
So while valuation can be interpreted as pricey with shares trading at nearly 81 times next year's earnings as a one-year forward price-to-earnings ratio, I believe the premium is justified given the financial momentum as the company is still in the early stages of its monetization potential.
Ultimately, there are several reasons for investors to remain bullish on Symbotic. With some confidence that the long-term strategy will work out, it could be just a matter of time before the stock rebounds higher.
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Dan Victor 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.
