Is It Too Late to Buy Symbotic Stock?

Share prices of Symbotic (SYM 1.62%) soared 40% on Nov. 21 after the warehouse automation company posted its latest earnings report. For the fourth quarter of fiscal 2023, which ended on Sept. 30, its revenue rose 60% year over year to $391.9 million and beat analysts' estimates by $85.1 million. Its net loss widened from $5.5 million to $6.2 million, or $0.08 per share, but still cleared the consensus forecast by a nickel.

Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at positive $13.3 million, compared to negative $20.5 million a year ago, and marked its first quarter of adjusted EBITDA profitability.

Image source: Getty Images.

For the full year, Symbotic's revenue surged 98% to $1.18 billion, its net loss widened from $6.9 million to $23.9 million, and its adjusted EBITDA loss narrowed from $89.8 million to $17.6 million. Those growth rates are incredible, but is it too late to buy Symbotic's stock after its rally of about 400% over the past 12 months?

Symbotic is a pure play on warehouse automation

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

Symbotic's largest customer is Walmart (WMT -0.08%), which owns 11% of the company. It holds a master automation agreement (MAA) with Walmart to automate all 42 of the retailer's regional distribution centers across the United States, and that deal -- which accounts for nearly 90% of Symbotic's revenue -- will last until 2034.

Symbotic has secured automation deals with other big clients like Target, Albertsons, and the grocery distributor C&S Wholesale to gradually diversify its business away from Walmart.

Earlier this year, it also formed a new joint venture (JV) with SoftBank (SFTB.Y 1.75%), which owned the special purpose acquisition company (SPAC) it initially merged with. The JV, called GreenBox, is a warehouse-as-a-service company that will exclusively purchase its automation systems from Symbotic through a $7.5 billion contract.

Why is Symbotic's stock soaring?

The stock is soaring for two reasons. First, the buying frenzy in artificial intelligence (AI) stocks over the past year drove the bulls to Symbotic because it seemed like a great play on AI-driven upgrades for warehouses. Second, revenue growth accelerated over the past two quarters, and the company achieved its goal of turning profitable on an adjusted EBITDA basis by the fourth quarter of fiscal 2023.

Data source: Symbotic. YOY = year over year.

During the conference call, CEO Rick Cohen dubbed fiscal 2023 a "year of doubles" -- in which it doubled its total sites in deployment, almost doubled its annual revenue, more than doubled its gross margin, and nearly doubled the total number of stores served by the Symbotic system to more than 3,000 customer stores.

For the first quarter of 2024, it expects its revenue to rise by a range of 70% to 79% year over year to $350 million to $370 million. It expects to generate a positive adjusted EBITDA of $11 million to $14 million, which would represent an adjusted EBITDA margin of 3.5% at the midpoint.

How much higher can Symbotic's stock soar?

For the full year, analysts expect revenue to rise 50% with an adjusted EBITDA margin of 8.3% as it turns profitable on the basis of generally accepted accounting principles (GAAP). In 2025, analysts expect Symbotic's revenue to grow 43%, its adjusted EBITDA margin to rise to 14.9%, and its GAAP net income to jump nearly eightfold.

We should take those bullish estimates with a grain of salt, since Symbotic still needs to overcome its customer concentration issues and fend off other competitors, like Amazon and Ocado, in the warehouse automation market, but it's off to a promising start and is firmly backed by Walmart and SoftBank.

However, Symbotic's valuations can be a bit confusing. On many financial sites, it has an enterprise value of $3.8 billion -- which might seem cheap at about 2 times its projected sales for fiscal 2024. However, its dual-class structure inflates its actual market capitalization to about $30 billion, or 17 times its fiscal 2024 sales.

That high price-to-sales ratio could cap its near-term gains as long as interest rates stay elevated. But if Symbotic can keep meeting analysts' bullish expectations, its market cap might still seem reasonable at 12 times its projected sales for 2025.

Is it too late to invest in Symbotic?

Symbotic is still a speculative stock, but it has a brighter future than many other SPAC-backed companies that recently went public. If you believe the company can reduce its dependence on Walmart and keep expanding, then it's not too late to pick up some shares of this pure play on the nascent warehouse automation market.