iRobot: More than Vacuums

04/17/2017 2:50 am EST

Focus: TECHNOLOGY

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

iRobot (IRBT) is familiar to most Americans as the maker of the Roomba floor vacuuming robot, notes growth stock specialist Mike Cintolo, editor of Cabot Top Ten Trader.

The company also makes the Scooba floor washing robot and the Verro pool cleaning robot, having divested itself of its tactical military robots for reconnaissance and bomb disposal in April 2016.

While revenue growth has been so-so (12% in 2013, 14% in 2015 and 7% in 2016) and earnings growth is estimated to drop by 3% in 2017, investors are excited about plans to hook Roombas up to the Internet of Things (IoT) and software that will allow the automatic vacuums to be controlled by Amazon’s Alexa.

iRobot just released a new version of its HOME app that will show post-cleaning maps of performance and connect to iPhones and Android devices.

Investors had a paradoxical reaction to the company’s Q4 earnings report on February 9 that beat on revenue and earnings for the quarter, but disappointed with 2017 guidance.

The company’s stock gapped down after the news, but began an immediate rebound that hit new highs in just seven weeks. Estimates that 2018 earnings will spike higher by 60% may explain the bounce.

With just 10% penetration of its robotic vacuums in the U.S., the stage is set for a surge in adoptions as part of increasing interest in the smart home. Investors seem to agree.

IRBT traded basically sideways from July 2013 (when it peaked at $41) to September 2016. The stock’s fortunes began to rise at that point, and IRBT rallied strongly to a high of $64 just before earnings in February.

The post-earnings gap down took the stock to $52, but it recovered quickly to $59 as March began. After a quick correction to $56, IRBT powered ahead in March and broke into new high territory late in the month. We think it’s buyable on any weakness, with a stop in the $60 area.

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