Where Will Symbotic Stock Be in 1 Year?

Symbotic (SYM -6.62%) went public by merging with a special purpose acquisition company (SPAC) on June 8, 2022. The developer of artificial intelligence (AI) technologies for robotic automation started trading at $10.54 per share, and its stock skyrocketed to an all-time high of $63.54 on July 31, 2023.

That rally was driven by its explosive growth rates and the buying frenzy in AI stocks over the past year. Symbotic's stock subsequently pulled back to about $33, but that still represents an impressive three-bagger gain in just 15 months.

Will this volatile AI stock head higher or lose its momentum over the next 12 months?

Image source: Getty Images.

How fast is Symbotic growing?

Symbotic automates the processing of pallets and cases in large warehouses with fully autonomous robots. It claims that a $50 million investment in one of its modules will generate $250 million in lifetime savings over a period of 25 years.

Many massive retail customers -- including Walmart, Target, Albertsons, and the wholesale grocery distributor C&S Wholesale -- already use Symbotic's services. Over the past year, it's consistently grown revenue at double-digit and triple-digit rates, while narrowing its losses on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis.

Data source: Symbotic. YOY = year over year. Fiscal year ends in September.

For the fourth quarter of fiscal 2023 (which ends this month), Symbotic expects its revenue to rise 19%-27% year over year as its adjusted EBITDA margin turns positive. For the full fiscal year, analysts expect the company's revenue to rise 83% to $1.09 billion as it narrows its adjusted EBITDA loss from $90 million to $31 million.

But during Symbotic's pre-merger presentation, it claimed it could achieve a positive adjusted EBITDA margin of 12% by fiscal 2023 -- and that figure would rise to 25% in fiscal 2024. Analysts only expect it to squeeze out a positive adjusted EBITDA margin of 8% in fiscal 2024. On the bright side, analysts still expect it to grow its annual revenue at a compound annual growth rate (CAGR) of 108% from fiscal 2021 to fiscal 2023 -- which surpasses its pre-merger target CAGR of 87%.

How much larger could Symbotic grow?

At the time of its public debut, Symbotic pointed out that 80% of U.S. warehouses still use manually operated distribution methods. These rack up higher operating costs, higher damage rates, and more employee injuries than automated solutions.

It also noted that 15% of U.S. warehouses use mechanized distribution methods -- but those non-automated solutions still racked up high maintenance costs, had multiple points of potential failure, and only generated limited savings. Symbotic believes its fully AI-driven robots and warehouse platform will disrupt and replace both types of distribution methods.

Analysts expect Symbotic's revenue to grow at a CAGR of 61% between 2022 and 2025. According to Precedence Research, the global warehouse automation market could still expand at a CAGR of 16% from 2023 to 2032 -- and Symbotic could potentially outpace the growth of the broader market by dominating the niche for AI-powered robots.

But Symbotic isn't the only player in this expanding market. It already faces a growing list of competitors -- including Amazon, which acquired several warehouse-automation companies over the past few years; 6 River Systems, which was bought by the fulfillment service provider Ocado from Shopify earlier this year; and start-ups like Locus Robotics and Fetch Robotics.

Symbotic's adjusted gross margin only dipped 10 basis points year over year to 18% in the first nine months of fiscal 2023, but the above competitors could limit its pricing power and compress its gross margins. Furthermore, Symbotic's adjusted EBITDA margins might be expanding, but it's nowhere close to breaking even on a generally accepted accounting principles (GAAP) basis. It also ended its latest quarter with $948 million in total liabilities and just $255 million in cash and equivalents.

Where will Symbotic's stock be in a year?

With an enterprise value of $2.1 billion, Symbotic still seems cheap at 1.2x next year's sales and 14x its adjusted EBITDA. That low valuation suggests it still has a lot of upside potential, but its persistent GAAP losses and high leverage could limit its near-term gains, as long as interest rates stay elevated. Its insiders have also sold nearly 50% as many shares as they bought over the past 12 months.

That said, I believe Symbotic's stock could gradually rise higher over the next 12 months if it maintains its steady sales growth, marches toward adjusted EBITDA profitability, and locks in more major customers. It could also be a compelling takeover target for a larger brick-and-mortar retail, e-commerce, or logistics company.