Shares for iRobot Corp. (NASDAQ: IRBT) have taken quite a beating recently, particularly since news broke that the company’s earnings outlook fell far short of what most analyst expected. The company, which produces famed consumer robot vacuum cleamers known around the world, like the Roomba , saw its shares drop by as much as 17 percent after the sour headlines surfaced.
A huge plunge
It goes without saying that the massive plunge in valuation that iRobot’s stock just underwent will be shackling the company’s future performance for some time. Many analysts on Wall Street had high hopes for the company, though recent earnings expectations have cast a serious shadow over its future ambitions. If iRobot’s executives don’t pull together a plan to reinstate confidence in their financial backers soon, the company can expect its shares to keep on plunging. However, if they do, this could present a golden opportunity to investors for a cheap stock set to rise.
The woes began with iRobot’s reporting of its net income; last year, the company reported a hefty $13 million in net income for its fourth-quarter, but this year it only brought in a paltry $4.6 million to invest in an LLC in the same quarter. Such a massive decrease in earnings may be a sign that consumers are beginning to grow tired of some of iRobot’s leading products, like the Roomba, and will begin turning elsewhere if serious changes aren’t made sometime soon.
iRobot’s original IPO, which occurred back in 2005, netted the company an impressive $115 million, and was seen then as a huge sign of promise for the company’s future. In the many years since then, however, many investors have soured on the company, and its recent plunge is likely indicative of future losses in valuation. Competition for iRobot has seriously heated up since the company’s public debut, and while it was once a novelty on the market capable of commanding serious respect for its robotic expertise, it’s now beset on all sides by competitors with alluring consumer robots of their own.
While being part of such an astonishingly fast-growing market like consumer robotics would normally be a boon for a company like iRobot’s shares, the reality is that its failure to sufficiently innovate has rendered the company past its prime. In today’s age more than ever, consumers are constantly demanding new, shiny gadgets, and while the Roomba may be a beloved classic in homes throughout the country, many customers are clearly looking for the next big thing.
If the company hopes to succeed well into the 21st century, and avoid disastrous plunges like that which it stocks just underwent, it will need to usher in some serious reforms to make it fit to compete in today’s market. Would-be investors shouldn’t expect the company to go anywhere soon, however; with an impressive market valuation of some $2.4 billion, iRobot has some staying power in the marketplace regardless of whatever bad news is currently besetting it.
The company’s executives should wise up, and begin seriously investing in new products capable of keeping today’s consumers on the edge of their seats. While Roombas may have been a truly novel item when they debuted, the tech that drives these autonomous vacuum cleaners is now fairly standard, and iRobot will need to reclaim its position as a robotic pioneer with new creations if it hopes to keep the wind in its sails.
Despite its need to innovate, however, iRobot shouldn’t abandon its old business staples entirely; as its CEO has made clear, U.S. household penetration has remained relatively low as far as its products are concerned, and iRobot could boost its shares by scooping up customers who were previously disinterested in its products. iRobot could theoretically tap into the ongoing “smart home” boom, for instance, and further integrate its products with other fast-growing household staples like smart home assistants.
The market is often times fickle, however, and iRobot may not have as much time as some of its executives think; if investors see its recent plunge as indicative of future results, the company could find itself dug deep into a hole that’s hard to escape from. While iRobot posted revenue figures that beat expectations, for instance, its ultimate earnings expectations are what soured its future, meaning investors are justifiably more focused on the bad news than the good when it comes to evaluating the company’s prospects.
Keep your eye on iRobot; a failure to innovate could slowly but surely consign the company to the dustbins, alongside of its aging products.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.