Analysts Are Recommending Symbiotic In July, High Potential?

Key Points

• Symbiotic operates in one of the few industries flashing expansionary lights; investors can get ahead of markets before capital is rotated into this space. 
• The peer group dynamics will explain why favoritism gravitates toward this stock. Fundamental reasoning can lead investors on the right path. 
• As new developments arise in the company, analysts at Citigroup are beginning to increase their price targets; perhaps other rating houses will follow suit soon enough.

Every market turn, such as the one investors encounter today, brings to light a set of favorite industries with their own set of perceived 'winning' stocks. The larger the underlying pivot, the more aggressive the adjustments needed to take advantage of the new breakouts in underlying financial assets.

As the United States FED takes on the challenge of slowing down rampant inflation rates via orthodox tools like hiking interest rates and reducing liquidity in financial markets, broader investor bases rotate their allocations to the economic pockets that will benefit the most. During this turn, it would seem that the machinery industry carries the best odds for a bullish breakout.

Breaking down business activity trends in one of the most widely followed surveys in the economy, the ISM manufacturing PMI, investors can spot an industry sporting signs of continued and accelerated growth. Machinery has proven a leader by expanding on New orders, production, and employment within the primary inputs that make up the index.

A growth combination in these areas can imply rising future and current demand, as a more extensive backlog of orders leads to rising production, creating the need for more employees to carry the load. Symbiotic NASDAQ: SYM is the perceived winner within this industry; for reasons that will become evident, this stock is set to rally like no other.

Scanning the Group

Symbiotic is pinned against big names like General Electric NYSE: GE and Eaton NYSE: ETN. However, investors can find evidence in many areas to justify picking the former over the latter, which may be under consideration by broader markets and analysts. While Symbiotic stock does not have much history to show investors, technicals can be put on the back seat for now, as the fundamental drivers of the business are the foundation behind today's market perception and sentiment toward the company.

By spreading the peer group's forward price-to-earnings ratios, a valuation metric traders use to gauge where markets value the future expected earnings of a given business - rather than the current earnings -investors can begin to understand where favoritism lies.

Symbiotic sells for a forward P/E of 276.2x, significantly superior to General Electric's 27.7x and volumes above Eaton's 21.6x. Some investors may scoff at these obscene multiples, arguing that they only make Symbiotic the more expensive alternative, and rightly so.

However, just as with anything else, the stock is 'expensive' for a reason, and markets are showing no problem paying a richer premium for each dollar of expected future earnings in the company, so unless investors know something the market does not, they would be wise to do some digging and find out just why the valuations are so high.

Symbiotic analyst ratings may be on the same train of thought here, as Citigroup NYSE: C has just raised its price target for the stock from a previous $32 to a staggering $52 per share. This new price target would translate into an attractive 13% upside from today's prices; the question now becomes: What has happened recently within the company that drove analysts to push their target so aggressively suddenly? The answer may lie in the latest customer sign-up, a testament to Symbiotic's products' adaptability within a roaring industry.  

Potential lies Ahead

Associated Food Stores has signed a deal with Symbiotic, making an alliance to work together and implement industry-leading warehouse automation systems. This could be the first domino in a series of potential new customers that can make such deals happen, especially after there is a case study to be made of Associated Food Stores and what success it can have by adding Symbiotic products to its ecosystem.

Perhaps all of these assumptions are the drivers behind the stock's stratospheric valuations. However, these multiples return to earth once investors look at the current earnings expectations.

Investors can read back to what seems to be the perfect storm in the stock; it all comes down to considering a possible purchase in this potential upswing. The industry presents a tailwind; the peer group points to favoritism within Symbiotic, and analysts are beginning to realize just how much potential there may be in the stock.

2024 earnings per share are expected to be $0.24 per share, a massive turnaround from today's net loss, and 2025 EPS of $0.63 would imply a 160% annual advance.