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iRobot: Time To Be Greedy

Nov. 17, 2019 11:54 AM ETiRobot Corporation (IRBT)13 Comments
Mauro Solis profile picture
Mauro Solis


  • iRobot presents fabulous long term prospects with risky short term prospects.
  • The trade war impacted the stock severely, but the war chest it has will enable it to come out on top.
  • It could deliver 30% annual returns for those who hold it until it can recover.

iRobot Corp (NASDAQ:IRBT) is expected to deliver significantly lower results in 2020 than in 2019, but it will be growing lovely in the following years.

Investing in the company presents a secure risk-reward proposition with a dream come true downside and incredible upside potential at a reasonable price. The catch is that 2020 will be a rocky year, and those who venture forward should be prepared for a lot of stress.

The Trade War strategy

iRobot got struck by tariffs of 10% initially, but by May of this year, they increased to 25%. Management decided to raise prices to protect the gross margin, which was a mistake. iRobot´s strategy long term is to grow in users and dominate the market and then use its pricing power to improve financially. Competitors decided to absorb the tariffs and keep the prices, and thus, iRobot's revenue was hurt.

Fortunately, management reconsidered, and since October, the prices have returned to pre-tariff levels, and Q4 should reflect healthy revenue growth. The shift in strategy will not be cheap, and the gross margin for 2020 could go lower than 40%, which significantly impacts the bottom line of the company.

The company is deciding to diversify its manufacturing strategy and produce select SKU´s in Malaysia. While it is not ideal to be forced to do so, there is a silver lining. Rarely do a company can build a meaningful portion of its production facilities from scratch. While the capital expenditure that the company will need to put forward will impact the depreciation, the company could take this opportunity to improve its production processes and improve production costs and time to manufacture.

Source: Investor Relations

iRobot is compensating for the loss with careful control of administrative expenses and appears to be determined to keep investing in R&D.

Finally, we

This article was written by

Mauro Solis profile picture
Engineer focused on green tech, working in the consumer goods industry for eight years, focused on environmental projects. I write about what I know and care about, Tech, Green Tech, entertainment, and some consumer goods and applications.

Analyst’s Disclosure: I am/we are long IRBT. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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