Symbotic Is Up Nearly 50% in 3 Months: Why It Can Keep Winning

Key Points

• Symbotic makes warehouse robotics that are catapulting the industry into the future.
• The company had fantastic results in Q4 and expanded its partnership with its biggest customer.
• Key indicators show improvements essential to the company's long-term success.

Symbotic NASDAQ: SYM is a revolutionary robotics company whose stock is on the rise big time over the past three months. Shares are up 52% over that period. Despite that, shares are still down nearly 30% through all of 2024. A big contributor to the company’s recent rise is its Q4 earnings report released on Nov. 18.

This analysis highlights an industrial stock that delivered over 250% total returns in three years. It reviews key earnings report details, examines Symbotic’s expanded deal with the world’s largest retailer, and provides insights on its long-term outlook.

Symbotic’s Innovative Products Drive Warehouse Efficiency

Symbotic builds robotic systems that make warehouses more efficient. Symbotic’s robots are fully autonomous and sort, move, and retrieve packages within a warehouse. This provides several benefits to Symbotic’s customers. First, they can help reduce labor costs associated with warehouse operations because companies need fewer humans. This helps warehouse companies in particular, as the industry has many unionized workers.

A Bureau of Labor Statistics report says that, in 2023, transportation and warehousing had a 16% unionization rate. That's one of the highest in the private sector. Companies have a clear incentive to move away from unions, which inflate their labor costs above what they would be otherwise. Automation is one way to achieve this.

Additionally, Symbotic’s robots can move at incredible speeds within warehouses, over 20 miles per hour. The machines' AI software allows real-time, dynamic decisions by analyzing changes in product demand. These benefits improve warehouse efficiency and profit maximization over human labor forces.

Breaking Down Symbotic’s Recent Earnings

Symbotic’s Q4 earnings report saw sales come in 23% above expectations. Adjusted earnings per share (EPS) notched a figure nearly seven times higher than expected. As a result, shares of Symbotic jumped nearly 28% in one day. Shares retracted around 7% as some investors likely cashed in the day after.

Aside from these headline numbers, the company’s improved adjusted gross margin was a huge development. This is important as the company’s biggest cost is the actual manufacturing and installation of its robotic systems. If it has trouble doing this profitably, the company has limited upside in the final profits it can provide to investors. Adjusted gross margin shows how much revenue the company keeps after covering its manufacturing and installation costs.

The importance of this metric is shown in Q3 when shares dropped over 20% after the earnings report. A large decrease in the company’s adjusted gross margin overshadowed the fact that it beat revenue estimates. Luckily, the company did exactly what it said it would in Q4: adjusted gross margin improved by over 300 basis points. It now sits moderately above the level seen in Q4 2023, even as sales have increased by 44%.

Signs Point to Continued Strength Going Forward

A huge tailwind for Symbotic is its massive backlog of $22.4 billion. That number is 12 times larger than the revenue the company has generated over the last 12 months. This shows the massive demand for Symbotic’s products and that it still has plenty of growth ahead. There is also evidence that the company is getting faster at installing its systems. This allows the company to convert its backlog to actual revenue faster. In Q4, installations that were started and completed both hit their highest quarterly levels.

Symbotic’s largest customer is Walmart NYSE: WMT; it provided 88% of total revenue in fiscal 2023. Symbotic recently announced an expansion of its relationship with Walmart. Symbotic will implement its automation systems in two new Walmart distribution centers in Mexico. It says these projects will add an additional $400 million to the company’s backlog. The “Walmex” deal has the potential to expand further.

On top of all this positive news, Wall Street is bullish. The average of five price targets released after the earnings report implies an upside in the shares of 40%. I am also bullish on Symbotic’s future. From what I have seen, management delivers on its promises. Additionally, Symbotic's addressable market is massive. The relationship with Walmart provides credibility. Business experts are renowned as the largest consumer staples company in the world for their management skills. Believing in a company Walmart believes in doesn’t make me lose sleep at night.