iRobot: Roomba!

09/06/2018 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

While iRobot (IRBT) has used its MIT pedigree to create robots that explored the pyramids, the sea floor and outer space, its investment value is based on its dominance of its consumer-oriented robot business, with its Roomba robot vacuum cleaner (RVC) leading the charge, notes Mike Cintolo, editor of Cabot Top Ten Trader.

The company also sells the Braava automatic floor mopping robot, the Scooba floor washing robot, the Ava video collaboration robot and the Mirra pool cleaning robot — all told, over the last 25 years, the company has sold more than 20 million robots.

Sales growth stalled to 7% in 2016, but rebounded to 34% in 2017, with the first two quarters of 2018 featuring 29% and 24% growth, respectively. The first two quarters have also enjoyed earnings growth of 27% in Q1 and 208% in Q2, which is the immediate cause for iRobot’s appearance on our Top Ten list.

The company is thriving for a couple of reasons. First, innovations like Wi-Fi connections for its Roomba vacuums are increasing product attractiveness. Second, the company is gaining traction internationally, including a move into the Chinese market in 2016, launching four new offices in Japan in 2017 and the purchase of its largest European distributor.

Roomba was also a featured product on U.S. Amazon Prime Day, with all robots selling out. iRobot completed a $50 million stock buyback program during Q2 and got a favorable patent infringement ruling from the International Trade Commission, which recommended an exclusion order of certain RVCs. Analysts see earnings up 38% this year and another 28% next as robots grab more share of the huge vacuum sector.

IRBT started a great run in January 2016, soaring from $35 to $110 in July 2017. That marked a meaningful top, though, with shares correcting to a double bottom in February and April 2018 before a well-received Q2 earnings report kicked off a strong rally that peaked at $119 early last week.

The stock has scrubbed off a few points, but is still fairly extended from its 25-day moving average (now around $96). We advise entering on weakness and using a loose stop.

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