1 AI Firm Using Robotics To Grow Fast

Companies that sell to other businesses are not often well-known by ordinary investors but some of the best businesses in the world operate on these B2B sales models.

One interesting enterprise that falls into that category is Symbiotic (NASDAQ:SYM), which has accomplished the remarkable engineering feat of integrating advanced robotics and artificial intelligence (AI) to vastly improve efficiencies in retail and wholesale operations.

Not many investors begin their hunt for great opportunities in the warehouse automation space but perhaps that’s where the opportunity lies because Symbiotic has developed a comprehensive end-to-end solution that encompasses design, assembly, and installation of modular inventory management systems, as well as the configuration of embedded software​​.

Staggering Financial Performance

2020 doesn’t seem that long ago but in business terms, it’s forever as far Symbiotic shareholders go because in Q4 of that year, the company posted top line revenues of just $14.4 million and indeed an identical figure in Q1 of the following year.

Since those modest figures were reported, revenue growth has been absolutely scintillating with numerous triple-digit percentage growth quarters delivered, and as of last quarter, the top line had grown to an astonishing $391.9 million.

Pair that growth with gross margins climbing to their second highest level in the past twelve quarters and you have a recipe to attract substantial investor interest.

What’s not so appealing, though, is the string of operating losses. Management delivered the disappointing news that operating income was $50.3 million in the red last quarter, and that continued a string of losses in each quarter for the past three years.

It’s clear that the market is willing to forgive those operating income losses while growth is so high, and indeed SYM share price is up 319% year-to-date, even after a falling 7.9% over the past week.

Clearly, investors are of the view Symbiotic as the standout player when it comes to automation with its unique integration of AI and robotics tailored to warehouse operations.

So too a history of surpassing market expectations and the company’s own guidance has contributed to Symbiotic gaining a reputation as a top growth stock since going public via a SPAC merger via Softbank.

With stunning sales, a clear product-market fit, and fairly modest operating losses, is now the time to buy Symbiotic on the dip?

Is Symbiotic Stock Undervalued?

Symbiotic is undervalued by 7.5% according to the 13 analysts covering the stock who have a price target of $54.69 per share.

It’s worth highlighting that the revenue growth is a really key variable in figuring out how high Symbiotic stock can go and a 5-year revenue exit discounted cash flow forecast puts fair value substantially higher at $78.71 per share.

If indeed the company can sustain a rapid revenue growth rate, it’s quite possible that the recent dip is an excellent opportunity to get in on a fast-growing stock during a rare pullback.

Value investors will balk at the idea of buying now, however, particularly following the very rapid rise in share price of over 4x in less than a year. 

Conservative investors will also likely feel some reticence to jump in with abandon given that share price volatility has been through the proverbial roof. This year alone SYM share price has been as low as $12 per share and as high as $63 per share.

While the broader trend has been higher, times of stomach-churning volatility have resulted in the share price getting chopped in half and then some in just a few short months. In short, this isn’t your run-of-the-mill mature company that will etch out a reasonable top line increase and steady profit from one quarter to the next.

Still, the allure of 98.4% year-over-year top line growth over the past twelve months from $593 million to $1.17 billion cannot be dismissed. And with $258.8 million in cash in the bank coupled with no debt, the runway for continued success appears long.

Time to Buy Symbiotic?

While Symbiotic’s top line growth has been astronomical, it has enough other drawbacks to at least provide investors pause before getting too enthusiastic.

For one, management has failed to report a profit over the past year and operating losses continue to mount. Eventually, the risk of continually falling into the red is downward pressure on the balance sheet liquid reserves, which in turn threaten the rapid top line growth rate.

When it comes to relative value at this time, Symbiotic is decidedly so-so, particularly after its enormous run-up year-to-date. And alongside the fast ramp in share price are heart-stopping plunges that investors must brace themselves for from time to time.

This is a stock that is largely priced to perfection, and will continue to undulate swiftly in both directions depending on how the winds of fortune blow.

Most standard valuation and financial metrics are in the red now, whether that’s price-to-earnings ratio, return on assets, net income and return on equity. As a result, the key line item to focus on really is the top line, and most importantly whether the rate of increase can persist. Any shortfalls are likely to be severely punished by analysts and shareholders.

If you’re looking for a highly disruptive, fast-growth stock that has the potential to truly revolutionize warehouse automation, Symbiotic may well hit the nail on the head but don’t be lulled into complacency that SYM share price can’t fall as fast as it can rise.

With that in mind, if you can tolerate the share price swings, the potential for a good run in the medium to long-term may well be worth the rollercoaster ride.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.