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iRobot Earnings Are Out — Buy, Sell or Hold?

It’s been a tough year for iRobot shareholders, but shares popped 5% on Q3 earnings — could it be a turnaround story for 2022 and beyond?

The robot vacuuming market is one of the most exciting industries out there — actually maybe not. But it is set to grow. Research suggests that the market is currently worth approx. $3.5 billion in 2021 and it will grow at an estimated 23.2% compound annual growth rate (CAGR), and reach $15.4 billion by 2028. So iRobot (NASDAQ: IRBT) earnings, a hit or a miss?

Earnings

iRobot reported $441 million in revenue, growing 7% year-over-year (YoY), and it saw a 14% increase in earnings from mid-tier and premium products, which accounted for 87% of total revenue. It came in well ahead on earnings estimates, $1.67 per share v.s. $0.70 expected. iRobot did have to update its guidance, citing chip shortages and increased transportation costs as the main issue, and that it may not be able to meet the demand for Q4 as a result. As with many other companies, iRobot believes the chip shortage impact will remain for 2022, but to a lesser extent in 2023. They have also used $100 million in cash reserves to repurchase common shares. 

And iRobot, the company?

The first thing that springs to mind when I hear iRobot is the movie starring Will Smith from 2004. The second is this slightly dramatic robot that cleans your home. Overall though, iRobot and the Roomba are synonymous when it comes to robot vacuum cleaners.

Believe it or not, the company has been around for over 30 years. It was founded by a group of MIT roboticists and one of them, Colin Angle, remains CEO to this day. In 2015, the Roomba was launched with a focus on home cleaning tech, and it quickly became a market leader, selling millions of units worldwide. Now, the company has built out a whole suite of products, and it just announced its new subscription service, the iRobot Select membership program.

Should you invest?

There are definitely some risks. Supply chain issues are ongoing so it may be difficult for the company to hit targets over the next 12 months. On top of that, it’s a highly competitive market. Perhaps this is attributable to it still being in its very early stages, only time will tell. With cheaper options out there, shoppers might think twice before spending a few hundred bucks (in some cases, upwards of $1,000) on a vacuum. However, a small number of key players are likely to emerge as the technology progresses, and that’s where iRobot has an advantage. Its time in the industry has allowed it to build an extensive intellectual property portfolio of over 1,500 patents worldwide. The entry costs to the market, and steep learning curve suggests it will be able to maintain its leadership position and grow it over the long term. 

A good comparison is the traditional vacuuming market. James Dyson revolutionalized home cleaning, is noted as one of the greatest innovators of all time, and the brand created a commanding presence as a result. Dyson had a 50% market share in the U.K. and became a bestseller in the U.S. when it brought out it introduced the “bagless” vacuum cleaner. Others simply couldn’t compete on quality. As demand grows, manufacturers will get better and better at improving the SPECs and prices will come down eventually as they did with previous vacuums.

As for the valuation, iRobot is a small-cap company, currently worth a little over $2 billion, and for a growing sector, shares look relatively cheap at a 21 price-to-earnings multiple. iRobot shares are down 27% in the last six months, so if you’re taking a long-term view, it could be a good stock to add to your watchlist. 

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