Whether it be due to labor shortages, clogged ports, high fuel costs, or simply challenges in managing warehouse inventories, disruptions to global supply chains are an increasing source of consumer frustration. These disruptions are also costing U.S. companies billions of dollars. As a result, retailers around the world are scrambling to find more efficient ways of getting products onto their shelves.
In its first quarter 2022 earnings conference call, Walmart (WMT -0.69%) Chief Financial Officer Brett Biggs said "the first quarter was one of the most challenging periods yet related to supply chain disruptions, increased costs and persistently high inflation."
Necessity is the mother of invention
Enter Symbotic (SYM 4.09%), a leading supplier of warehouse automation. The company has developed cutting edge robotics and technologies that help Walmart and other large retailers address these challenges. While it may not be a household name in the investing community, millions of households buy products that have been either manufactured or distributed by Symbotic's management team.
Symbotic's warehouse automation solution is an intricate system of robots, racks, and miniature autonomous forklifts, all coordinated by artificial intelligence software. The workhorse of the system is the Symbot, a driverless vehicle that looks like a mix between a go-kart and a forklift. After products arrive by truck at a customer's distribution center, they are removed from the pallets and sorted by AI-powered robots. A network of Symbots then efficiently collect, distribute, and store the products throughout the warehouse.
Symbotic software coordinates this entire process, saving labor cost, increasing the pace of inventory flow, and maximizing warehouse and trailer storage space. The software also reacts quickly to inputs from store inventory managers, allowing the managers to get products that are in high demand onto shelves more rapidly. The end result is faster inventory turns, fewer product shortages, and ultimately, more satisfied customers.
Can the Symbotic system revolutionize warehouse automation?
According to Joe Metzger, Executive Vice President of US Supply Chain Operations at Walmart, the Symbotic system is "a game changer." Metzger and Walmart management were so impressed with Symbotic that they signed an agreement to implement the Symbotic system in all of Walmart's 42 distribution centers.
Additionally, Walmart has provided Symbotic with capital to fund the company's rapid expansion and currently holds 14% of Symbotic outstanding shares.
Symbotic is currently providing its warehouse management systems to Walmart, Albertsons Companies Inc (ACI -0.52%), and C&S Wholesale Grocers (the multi-billion dollar parent company to Piggly Wiggly, Grocers Supply, and Grand Union.) Committed orders from these customers are expected to provide the company with years of rapid growth.
While Symbotic only serves the grocery and general merchandise industries right now, management has the long term vision to add warehouse management solutions for companies in additional industries such as apparel, home improvement, and auto parts. Additionally, new Symbotic global investor Softbank (SFTBF -0.94%) will likely be instrumental in helping the company extend its warehouse management solutions to leading retailers around the world. This extended runway of potential rapid growth has been one of the hallmarks of many top performing stocks over the long term.
Symbotic shares started trading publicly on June 7, 2022 after completing its merger with a special purpose acquisition corporation (SPAC). After combining the additional funds raised in the SPAC merger transactions with the company's cash pre-merger, Symbotic now has nearly $450 million in capital to fund management's aggressive growth plans for years to come.
A bumpy road
Symbotic shares have been volatile post-merger, due in large part, to the limited number of shares trading publicly. The share price shot up wildly to $20 (over double the SPAC merger reference price) after short term traders misinterpreted an SEC filing detailing Walmart's pre-merger ownership position. After retracing almost all of this post-merger surge, the stock has since bounced back to the $16 range. Potential investors should expect continued volatility as more company shares become registered to trade publicly over the coming weeks and months. Savvy investors might see opportunity in such volatility, especially if the stock once again approaches the price Walmart and Softbank paid for their most recent Symbotic share purchases.
With a current market cap of just over $8 billion, Symbotic trades at a rich 11 times management's sales expectations for 2023. The company is on a rapid growth trajectory, however, as management expects revenue growth of 106% in 2022 and 92% in 2023 . Margins are also expected to expand over the coming years due to economies of scale.
Walmart and Softbank bought shares. Should you?
Given the company's tremendous long term growth opportunity to improve the operating efficiency of the world's largest retailers, Symbotic shares may hold appeal to patient investors. According to Vikas J. Parekh, Managing Partner at SoftBank Investment Advisors, "We believe Symbotic is at the forefront of a more than $350 billion market opportunity to reinvent warehouse automation and reshape the global supply chain."
Of this opportunity, the company has already booked $11 billion in committed orders which bodes well for sustainable growth through 2023 and beyond. With a massive total addressable market, "game changing" technology, proven management team, and strong current billing and operating trends, Symbotic checks many of the boxes investors should look for in promising long term growth opportunities.