iRobot: A Case Of Political Games Hampering Innovation

Aug. 14, 2019 12:58 PM ETiRobot Corporation (IRBT)7 Comments
Shiraz Lakhi profile picture
Shiraz Lakhi


  • The demand for on-trend iRobot products remains strong, with continuing growth (albeit at a slightly slower pace).
  • China trade wars are resulting in a temporary hit for the company as management seeks to find pro-active solutions.
  • At current price/EBIT, the stock provides a compelling entry point, with reasonable potential for recovery back to median price/EBIT levels.

Shares in innovative robotic vacuum, mop and lawn-mower maker iRobot (NASDAQ:IRBT) took a tumble on Wednesday, following a pattern of increasing (but slowing) revenues. Sales came in 15% higher than the same period in the previous year at $260.2 million, but a few points below analysts’ expectations of $268 million. Operating income took a substantial dive, down almost 60% from the previous year quarter at $5.3 million.

iRobot ProductsSource: iRobot Company Website

Investors realize the company is still at the growth stage with significant, necessary investments in R&D to establish a strong foothold, and wide moat in a business which will grow globally in accordance with the consumer trends towards convenience and affordable home automation. So, from an investors’ perspective, R&D and Capex expenditure is a given, as long as this produces a long-term competitive edge, and effective return.

China Trade War Rears Its Ugly Head Once Again

This brings me to one of my key points in this article. While R&D/Capex spend is expected in businesses like iRobot (in fact for many investors, the more spent intelligently the better), what iRobot has suffered from in the last quarter drop in profits, is not entirely the effect of investing expenses. It is in fact, as the CEO Colin Angle put it:

the direct and indirect impacts of the ongoing U.S.-China trade war and the recently implemented 25% tariffs which are likely to constrain U.S. market segment growth in the second half of the year below our expectations at the start of 2019.

This, to investors is a bitter pill to swallow, at least all in one go, and the trigger which led to the Wednesday sell-off. The stock opened at $72.70, 23% below the Tuesday close (just before reporting). It then recovered slightly on an overall positive Wednesday in the markets (alongside most stocks), closing at $74.51. On Thursday, the stock (along with most U.S. markets, which were

This article was written by

Shiraz Lakhi profile picture
Equity Investor - Healthcare, Biotechnology, Clean Energy, Automotive Technologies.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in IRBT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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