Symbotic (SYM 1.62%) has been one of the market's hottest growth stocks since it went public by merging with a special purpose acquisition company (SPAC) last June. The warehouse automation company's shares opened at $10.54 each on the first day, soared to an all-time high of $63.54 on July 31, 2023, and currently trade at about $56.
Does Symbotic still have more upside potential after racking up those multibagger gains? Let's review three reasons to buy Symbotic stock -- as well as three reasons to sell it -- to see where it might be headed.
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The three reasons to buy Symbotic
Investors should still consider buying Symbotic's stock because it's growing rapidly, its profitability is improving, and its core market is still expanding.
Symbotic's revenue surged 136% in fiscal 2022 (which ended last September) and rose another 98% to $1.18 billion in fiscal 2023. In addition to nearly doubling its revenue in fiscal 2023, it multiplied its total sites in deployment, almost doubled the total number of stores served by its systems, and significantly expanded its annual gross margins. Analysts expect its revenue to continue to rise at a compound annual growth rate (CAGR) of 46% from fiscal 2023 to fiscal 2025.
Symbotic also achieved its goal of turning profitable on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of fiscal 2023. Its adjusted EBITDA margin turned positive in the fourth quarter of the year, and analysts expect it to generate a positive adjusted EBITDA of $146 million in fiscal 2024, along with its first generally accepted accounting principles (GAAP) net profit of $34 million. They forecast its adjusted EBITDA and GAAP net income will soar another 157% and 694%, respectively, in fiscal 2025 as economies of scale kick in.
We should take those bullish estimates with a grain of salt, but they indicate Symbotic will retain its early-mover advantage in the warehouse automation market as an increasing number of companies automate their fulfillment centers and logistics networks. According to the company's own estimates, a $50 million investment in just one of its modules (of automated robots for processing pallets and cases) can generate $250 million in savings over 25 years.
Mordor Intelligence expects the warehouse automation market to expand at a CAGR of 16% from 2023 to 2028. So even if the broader market cools off, Symbotic should still have plenty of room to grow.
The three reasons to sell Symbotic
Symbotic's growth rates are impressive, but investors should still consider selling the stock because it has severe customer concentration issues, its stock is expensive, and insiders are cashing out.
Symbotic generates nearly 90% of its revenue from Walmart (WMT -0.08%), which was its largest investor prior to its public debut and still owns 11% of the company. Symbotic holds a Master Automation Agreement (MAA) with Walmart to automate all 42 of the latter's regional distribution centers across the U.S. through 2034. It's gradually diversifying its customer base via a joint venture with SoftBank (SFTB.Y 1.75%) (which owned the SPAC it merged with), as well as through deals with Target, Albertsons, and C&S Wholesale Grocers, but it will remain overwhelmingly dependent on Walmart for the foreseeable future.
Symbotic's dual-class share structure also obfuscates its true valuation. Its enterprise value of $4 billion, which doesn't include all of those shares, might seem cheap at 2 times this year's sales. But its market capitalization of $32 billion -- which includes both classes of shares -- looks a lot pricier at 18 times this year's sales.
Symbotic's valuation was likely inflated by the buying frenzy in artificial intelligence (AI) stocks over the past year. Symbotic's warehouse robots are certainly driven by AI, but the company shouldn't be confused with more straightforward AI plays like Nvidia.
If Symbotic's stock had more room to run after its five-bagger gains over the past 18 months, then its insiders should probably be scooping up more shares. But over the past three months, they sold more than twice as many shares as they bought. That chilly insider sentiment suggests it might be time to book profits in this high-flying growth stock.
Which argument makes more sense?
I believe Symbotic's stock could continue rising if it scales up its business, diversifies its customer base, and achieves stable GAAP profitability. But if fails to check just one of those boxes, its stock could crumble under the weight of its valuation. The bullish case still makes sense for speculative investors who are willing to ride out the near-term volatility. However, conservative investors might want to see if it can expand beyond its niche and widen its moat before pulling the trigger.
