Walmart Is the Best and Worst Thing to Happen to Symbotic Stock. Here’s Why.

Robotics company Symbotic (SYM -5.43%) scored a coup in 2021 when it contracted with Walmart (WMT -0.37%) to automate the retail giant’s 42 regional distribution centers. Given Walmart’s size, such a deal can change the game for any rising company and significantly benefit its investors.

However, that has not led to Symbotic landing comparable contracts with other companies. In fact, the contract could also become the worst thing that has happened to Symbotic stock. Here’s why — and what it means for investors.

Symbotic and Walmart

The company’s relationship with Walmart goes back to 2017, when it tested Symbotic’s technology at a Walmart regional distribution center in Brooksville, Florida.

Working with Symbotic meant that Walmart could sort, store, retrieve, and pack freight onto pallets with increased efficiency. That led to a master automation agreement in 2021 to implement the technology at 25 of Walmart’s regional distribution centers. Both companies extended the deal in 2022 to cover all 42 of these distribution centers.

At the same time, Walmart has bought 58.8 million Symbotic shares. That amounts to a whopping 73% of the 80.9 million outstanding shares.

Unfortunately for Symbotic, that deal may mean that its main client has effectively taken over the company. Despite Symbotic’s success with Walmart, it has had only limited success attracting other clients. In the first nine months of 2023, the company said one unidentified client accounted for 87% of its revenue. Given Walmart’s relationship with Symbotic, one has to assume that company is the retail giant.

Symbotic’s financials

Also, it is difficult to deny that the relationship benefits Symbotic tremendously, at least for now. In the first three quarters of its fiscal 2023 (ended June 24), the company reported $785 million in revenue, 125% more than in the same period in 2022.

Unfortunately, operating expenses more than doubled over the same time frame. This means that in the first three quarters of fiscal 2023, the net loss of $18 million increased from just over $1 million in the year-ago period.

Moreover, shareholders should not expect this growth pace to continue. The fiscal fourth-quarter revenue forecast calls for between $290 million and $310 million. This would mean only a 23% revenue increase at the midpoint.

Furthermore, the gains may have been already made. The stock is up by more than 240% so far this year, a pace difficult to maintain. Indeed, at a price-to-sales (P/S) ratio of 2.4, the stock could attract additional interest. But with Symbotic appearing to be tied to the whims of Walmart, the stock’s fortunes could change at any time.

Avoid Symbotic stock

With Walmart as Symotic’s main client and shareholder, investors are probably wise to avoid the stock despite a reasonable valuation. Admittedly, the recent growth in the stock price will tempt some investors, especially at its current sales multiple. Nonetheless, these attributes do not appear to outweigh its problems. In its current state, the higher revenue has led to rising losses.

Additionally, Symbotic has struggled to attract new clients, perhaps because Walmart’s competitors perceive choosing Symbotic as a benefit to the retail giant. This means that rather than serving as the game changer that makes Symbotic the next great robotics stock, the relationship with Walmart may have limited the company’s potential for growth.