Here's Why iRobot is Tanking

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

iRobot (NASDAQ: IRBT  ) just reported fourth-quarter and full-year results, and boy, do they look ugly. Sure enough, while negating the threat of robots taking over anytime soon, the report sent fickle investors running for the hills, as the stock plummeted more than 12%. While it's not as bad as the 19% loss iRobot investors endured following last quarter's earnings, something tells me this provides little solace for its current shareholders.

But were the results really that bad? Let's dig into the numbers to find out.

Revenue for the fourth quarter was $100.7 million, down 23% from the year-ago period. For the full year 2012, revenue was also down 6.3%, to $436.2 million and, as a result, net income for the year fell 57%, to $17.3 million. Worst of all, iRobot suffered a net loss in the fourth quarter, of $5.9 million, or $0.21 per share, compared with net income of $10.6 million in the fourth quarter of 2011.

Interestingly, the fourth-quarter results were better than both iRobot and its analysts predicted in October, when the company called for a loss per share between $0.33 and $0.39. So what dragged the company down?

As CEO Colin Angle reiterated multiple times during last quarter's earnings call, iRobot expected the restructuring of its struggling Defense and Security segment to have a negative effect on earnings per share between $0.09 and $0.11. In addition, management previously warned that the acquisition of Evolution Robotics would be dilutive to earnings for at least two quarters, and expected a negative impact on earnings per share of $0.18 to $0.22.   In the end, however, the combination of both events reduced EPS by a less-than-expected $0.22. 

This too shall pass
With its defense business now stabilized, and the incorporation of Evolution Robotics under way, iRobot investors can look forward to an increasing reliance on the fast-growing Home Robot business, which enjoyed 28% growth, and accounted for 82% of the company's total revenue for the year. When all's said and done, at the end of 2013, iRobot now expects the profitable home bots to make up 90% of its overall business after growing another 20%.

In addition, iRobot has begun shipping its RP-VITA medical telepresence robots to partner InTouch Health, where the systems will be integrated with proprietary technology for telemedicine and medical health records. While it remains to be seen how quickly hospitals will adopt the system, it should be affordable at between $4,000 and $6,000 per month through a leasing model.   This may sound expensive at first, but it looks downright insignificant compared to expensive robotic surgical systems like Intuitive Surgical's da Vinci robots, or MAKO Surgical's RIO Platform, where the upfront and recurring costs can easily run to seven figures.  

Still, we shouldn't expect to see RP-VITA materially contribute to iRobot's revenue for at least another two years. Unlike newcomer MAKO Surgical, however, iRobot has a clear, predictable path to solid profitability, and doesn't need to worry as much about chunky revenue negatively affecting its future quarterly results. 

Bottom line
Nobody likes to see red in an earnings report, even if the numbers are better than expected. In the end, I'm convinced this is nothing more than a knee-jerk reaction to results that are only bad on the surface. iRobot's losses won't last forever, and today's drop is the perfect chance for opportunistic investors to buy.

The Motley Fool's chief investment officer has selected his number one stock for 2013. Find out which stock it is in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2242779, ~/Articles/ArticleHandler.aspx, 9/25/2016 11:59:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
IRBT $42.67 Down -0.56 -1.30%
iRobot CAPS Rating: *****