The warehouse automation industry is booming as companies are racing to shave down costs. Armlogi Holding (NASDAQ:BTOC) is the newest AI stock that specifically targets these clients. They seem well-positioned to capitalize on this growing trend. BTOC stock nearly doubled in October before the recent cool-off. Let's take a closer look at why Armlogi may present an exciting opportunity for investors.
The Rising Tide of Warehouse Automation Could Lift BTOC Stock
The global warehouse automation market is expected to reach $41 billion by 2027, growing at a CAGR of 15% from 2022 to 2027. Massimo Group has partnered with Armlogi for vehicle assembly and logistics.
Under their agreement: Armlogi will receive Massimo vehicle kits at warehouses in Savannah, GA, Edison, NJ, and Walnut, CA. Massimo will handle vehicle assembly at these locations and Armlogi will provide storage and delivery.
David Shan, CEO of Massimo, stated: "This partnership will enhance our operational capabilities and efficiencies by putting delivery of vehicle components, assembly and shipping closer to order destinations."
You should keep in mind that Massimo Group itself is a pretty small company with a $133 million market cap--with a shrinking revenue--and is currently unprofitable.
I would like to see this company land some big customers to be really excited about it. Armlogi Holding announced a "significant expansion" of its trucking operations to "major clients, including Amazon" back in July, though there's no formal partnership here. They are also an authorized warehouse provider for Temu sellers in June 2024, but the amount of clients they serve daily sits at around 155.
One could argue that this is a good thing since perhaps you're getting in before that happens. You could also argue that the product Armlogi is offering isn't good enough for big customers. Regardless, there's no surefire AI startup stock; both the bears and the bulls will have solid arguments.
The Bear Argument For BTOC Stock
One of the first things that caught my eye when going through their 10-K is the following:
"For the fiscal years ended June 30, 2024 and 2023, we had total revenue of $167.0 million and $135.0 million, respectively, and net income of $7.4 million and $13.9 million, respectively. While we do not have any subsidiaries, assets, or employees in the PRC, we generate a significant part of our revenue from customers based in China. During the fiscal years ended June 30, 2024 and 2023, we generated approximately 96% and 96% of our revenue from PRC-based customers, respectively."
Armlogi seems way too reliant on revenue from a country that the upcoming administration will likely pivot to in a way that won't benefit trade with them. When you take that risk into account--and the fact that it has a customer concentration problem--you heavily vet BTOC stock before you put money into it.
Net income dropped to $7.4 million in FY2024 from $13.9 million in FY2023 due to rising costs of sales (up 36.2%). Gross profit margin dropped significantly from 19.1% to 10.8%. The company also plunged into unprofitability in Q1 FY25, though I believe you're better off giving them a pass here since most AI startups are even worse in the profitability department. That said, the downward trend is pretty worrying.
The Bull Case for Armlogi Holding
The first quarter of fiscal year 2025 (ended September 30, 2024) showed concerning trends for Armlogi. Revenue grew marginally by 3% to $42.5 million. However, they have had consistent top-line growth with revenue increasing 23.6% to $167 million in FY2024 (ended June 30, 2024). This growth spans across both major segments: Transportation services, which grew 18.8% to $115.3 million, and the Warehousing services segment, which increased 38.1% to $51.5 million.
I also think management is trying to wean off China--as it is the most sensible thing to do right now for a company so reliant on it--by setting up locations in California, New Jersey, and Georgia.
Nonetheless, the bullish case largely rests on the company's ability to translate its infrastructure investments and strategic positioning into improved profitability.
Management has not provided specific forward-looking revenue or earnings guidance in their recent reports, so there's no yardstick for me--or most analysts--to see where this train is heading. The only true bullish catalyst would be if Armlogi gets acquired or lands a partnership with a major company because at the current burn rate of approximately $4.65 million per quarter, and with only $2.92 million in unrestricted cash, they need cash fast or they won't be able to continue as a going concern.
Valuation and Future Prospects
You're paying 33 times earnings and ~1.7 times sales for this company. I personally do not think that's worth the financials being offered here.
Can BTOC stock still prove me wrong? Definitely. As I said, if it lands some solid contracts soon--and it certainly could since it has been getting decent attention recently--the stock could soar much higher. It could be worth buying if you're just looking to stock up on promising AI startups. Be careful of your portfolio suffering from "diworsification," though.
While I acknowledge the potential of BTOC as an AI play, my conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
