robot company symbolic (SYM -5.43%) He made a coup in 2021 when he signed a contract with walmart (WMT -0.37%) Automate the retail giant’s 42 regional distribution centers. Given Walmart’s size, a deal like this could be a game-changer for the startup and deliver big returns for investors.
But that hasn’t led to Symbotic signing comparable contracts with other companies. In fact, this deal could be the worst thing to happen to Symbotic stock. We explain why and what it means for investors.
symbolic and walmart
The company’s relationship with Walmart dates back to 2017, when Symbotic’s technology was tested at Walmart’s regional distribution center in Brooksville, Florida.
By working with Symbotic, Walmart can now efficiently sort, store, retrieve, and palletize shipments. This resulted in a master automation agreement to deploy the technology in 25 of Walmart’s regional distribution centers in 2021. The two companies have extended their agreement through 2022 to cover all 42 of these distribution centers.
At the same time, Walmart purchased 58.8 million shares of Symbotic stock. This represents a whopping 73% of the 80.9 million shares outstanding.
Unfortunately for Symbotic, this deal may mean that its main customer has effectively taken over the company. Despite Symbotic’s success with his Walmart, he has had limited success in attracting other customers. The company announced that in the first nine months of 2023, one unidentified customer accounted for 87% of its revenue. Considering the relationship between Walmart and Symbotic, we have to assume that the company is a retail giant.
Symbotic’s financial situation
It’s also hard to deny that this relationship will greatly benefit Symbotic, at least for now. The company reported revenue of $785 million in the first three quarters of fiscal 2023 (ending June 24), an increase of 125% compared to the same period in 2022.
Unfortunately, operating expenses more than doubled over the same period. This means his net loss for the first three quarters of fiscal 2023 was his $18 million, up from his just over $1 million in the year-ago period.
Furthermore, shareholders should not expect this pace of growth to continue. Revenue estimates for the fiscal fourth quarter will be between $290 million and $310 million. This would mean only a 23% revenue increase at the midpoint.
Moreover, the profits may already have been made. The stock is up more than 240% since the beginning of the year, and it will be difficult to maintain this pace. In fact, a price-to-sales (P/S) ratio of 2.4 could generate more interest in the stock. But Symbotic appears to be tied to Walmart’s whims, and its stock’s fortunes could change at any time.
Avoid symbolic stocks
With Walmart being Simotic’s major customer and shareholder, investors would probably be wise to avoid the stock despite its reasonable valuation. Certainly, the recent rise in the stock price will tempt some investors, especially at the current sales multiple. Nevertheless, these characteristics do not seem to outweigh its problems. In the current situation, losses are increasing due to increased revenue.
Additionally, Symbotic has struggled to attract new customers, perhaps because Walmart’s competitors perceive choosing Symbotic as a benefit to the retail giant. This means that instead of serving as an innovative company that could make Symbotic the next great robot stock, its relationship with Walmart may have limited the company’s growth potential.
Will Healy has no position in any stocks mentioned. The Motley Fool has a position in and recommends Walmart. The Motley Fool has a disclosure policy.