iRobot Stock Has the Innovative Edge
Today’s stock relates to one of my favorite strategies for investing: picking companies that are leaders in their chosen category and which cater to a rising technology trend. One technological game changer is the rise of robots, and many companies are providing products and services for the robotics industry.
However, not all of them have the technical expertise or a substantial market share, which is essential for investors looking to make triple-digit returns. We have to be careful in separating the wheat from the chaff when it comes to investing in robotics stocks, as this could mean losing multibaggers in the long run.
Our focus today is iRobot Corporation (NASDAQ:IRBT), a leading player in the consumer robot space that is famous for its “Roomba” vacuuming robot. The company’s robots provide people with smarter ways to clean their houses. iRobot’s expertise in building durable, high-performance, and cost-effective robots by closely integrating software, electronics, and hardware should help it capitalize on the expected strong growth in demand for robot-based consumer products.
iRobot stock was recently hit by the news of competition eating into its market share. But, as an agreement in a patent dispute shows, iRobot has the edge, as far as technology and expertise are concerned. Last month, iRobot announced a confidential agreement with Micro-Star International Co Ltd (TPE:2377). As part of the agreement, Micro-Star agreed to exit the robotic cleaning industry worldwide, as well as to compensate iRobot with a confidential monetary payment. This shows how iRobot can defend its valuable intellectual property.
iRobot has also partnered with “Amazon Web Services” (AWS), which will enable the company to increase the number of connected robots it supports worldwide and allow for enhanced capabilities in the smart home. This positioning of the company as a strategic player in the emerging smart home market should take iRobot stock further up. Moreover, IRBT stock is boosted by the growing market size.
As per a report by Future Market Insights, the global residential robotic vacuum cleaner market is expected to reach a value of more than $2.4 billion by the end of 2021. This represents an impressive compound annual growth rate (CAGR) of 12%. The report further says that as lifestyles improve in developing regions and people become more concerned about the quality of indoor air, automated home-cleaning solutions should witness increased demand. (Source: “Residential Robotic Vacuum Cleaner Market:Growing Inclination Towards Automated Cleaning Expected to Fuel Market Growth:Global Industry Analysis and Opportunity Assessment, 2016-2021,” Future Market Insights, December 27, 2016.)
iRobot is well positioned to capitalize on the rising opportunities in this space. Since last year, the company has taken steps to strengthen its position as the dominating player in diversified consumer robots, and to remain focused on key technologies—especially software. iRobot successfully launched the “Roomba 960,” which extends mapping, visual navigation, and cloud connectivity to a wider range of customers. Despite the competition, iRobot stock should continue growing as the demand for its innovative solutions grows.
The latest quarterly results support this optimism. The company posted stellar results for the second quarter. iRobot’s revenue of $183.0 million grew 23% year-over-year, driven primarily by the U.S. and China. Earnings per share (EPS) was $0.27, as compared to $0.17 for the same period last year. iRobot also raised its 2017 core business full-year revenue and product expectations. For the full year, the company expects revenue in the U.S. to grow about 30%, which is much better than the earlier estimate of 18% to 20%. (Source: “iRobot Reports Strong Second-Quarter Financial Results,” iRobot Corporation, July 25, 2017.)
Given the strong momentum in the U.S., Europe, and China, where revenues for the second quarter increased 38% compared with last year, iRobot stock has substantial upside.
As the following stock chart shows, IRBT stock has gained more than 200% over the last five years and is up by over 70% over last year.
Chart courtesy of StockCharts.com
With the change in lifestyles around the world, there will be an acceleration in the rate of adopting house-cleaning robots, which should keep iRobot stock flying high. The company is making a substantial investment in sales and marketing programs at present, since it is important to build awareness and generate results.
Moreover, it is highly likely that as it makes further inroads into the global residential robot cleaning market, iRobot may target other verticals as well, which bodes well for iRobot stock.