First, automated cleaners were science fiction. Decades later, retail markets, finally offered these devices, but they were largely novelty items. Despite some early problems, iRobot Corporation (Nasdaq:IRBT) has retained the course. Today, IRBT is one of the most famous names in the “vacuum bot” industry.
How long this success will last, though, this is a major issue. Yes, IRBT shares have soared from the beginning of 2016, up to 80%. That said, iRobot has experienced considerable difficulty in the markets over the past year and a half. From blowing past $100 to flirting with half of this amount, the stock was incredibly volatile.
To put things in perspective, the cleaner the stock is only about 3% with the opening of 2017. In other words, the investors just didn’t know what to expect from this company.
The situation is aggravated by the fact that yesterday Bloomberg reported that Amazon.com ink. (Nasdaq:weekly) works over creation of the robot, code named “Vesta”. Movement is not surprising. Amazon competes aggressively in the smart home market, taking on giant Apple. (Indexshares aapl) and alphabet Inc (Nasdaq:googl at).
That Amazon is a well-known destroyer not ease concerns on wall Street. Markets rapidly breaks IRBT stock, with shares closing more than 6%. Not a great way to start your first quarter statement of income in 2018!
Things can make it worse. Amazon is already ahead of Apple in the smart household sector due to its advantages of connection of the digital assistant Alexa. If Vesta works with Alexa, why not? — I don’t know where this leaves IRBT.
One thing is certain: if the user comes to the decision, or at least most likely offer quickly, is a retreat for iRobot promotions. IRBT can deliver?
It may be too little, too late for IRBT stock
On paper, the cleaner should have an easier time beating expectations. For Q1, the consensus forecast of analysts pegs earnings per share at 49 cents. It is near the upper limit of the calculated spectrum, which ranges from 31 cents to 67 cents. In addition, the current valuation is significantly below the 58 cents of EPS that the company achieved in the corresponding quarter last year.
On the revenue front, analysts expect sales to fall between the range of $200 million to 222,6 million$. The consensus is 211.4 million. In the corresponding quarter of last year, IRBT brought in $168.5 million, which amounted to a $100,000 above the consensus forecast.
Although it seems that investors have enough enthusiasm for iRobot, forecasts reduced to reflect actual performance. For example, revenue growth from 2016 to 2017 was almost 32%. And with the 1st quarter of 2017 against the previous year, revenue grew almost 29%. Thus, the projected growth of 25% in the coming quarter are relatively disappointing.
What bothers me more, though, is a clear trend of income. Over the past four years, the volume of an average income increase of 11%, but individual results choppy. In 2016, the profit fell to 41.9 million$, which is 5% drop from the haul of 2015. In addition, in Q1 2017, we saw a 346% increase in earnings per share. This year in the 1st quarter, we may see a decline.
This situation may soon improve. In the last three years, operating and net margins dipped significantly. Also problematic: the costs of SGA ahead of investment in research and development. With big competitors on the horizon, I need to see more of an emphasis on R&D.
Which segues into another concern: the report of the 1st quarter doesn’t matter. If vacuum cleaner scores great, IRBT stock is facing significant risk mood. We’ve all seen what Amazon can do, and it’s not pretty for the unlucky competitors.
The risk of the product to iRobot stock
Going forward, one of the major risk factors I see for iRobot promotion of the products themselves. I admit that at the present time in the company of the Roomba is a robot vacuum cleaner industry with 60% market share. But with Amazon, perhaps in the mix, it won’t last.
Usually one story does not fundamentally change the overall picture for the company. But when you’re talking about Amazon, standard operating procedures do not apply. Armed with Alexa compatibility, Amazon has a far superior ecosystem. If the cleaner was to compete tit for tat, they would have to invest heavily in research and development.
Now as I mentioned earlier, they are more concerned about the light.
Another thing is that Roombas are not cheap. Entry-level recommended retail price starts from $300 and brand is $900. This is fine and good if the products work as advertised. However, the litany (last) in customer complaints suggests that a growing number of very dissatisfied with their purchases.
Again, the dilemma; the company can sculpt whatever they want with charts and graphs. Perhaps in the near future, IRBT stock may have a positive answer. But let’s not kid ourselves. Amazon is a harbinger, and this is what investors will think.
At the time of this writing, Josh Enomoto to take a position in any of the above securities.