3 Reasons Investors Are Ignoring iRobot Corporation's Weak Guidance

iRobot rose 12% Thursday, reversing an after-the-close plunge yesterday following weak guidance. Here's what happened.

Feb 6, 2014 at 4:35PM

Yesterday after the market close, shares of iRobot Corporation (NASDAQ:IRBT) plunged more than 5% after the company turned in better-than-expected fourth-quarter results.

iRobot reported Q4 sales of $126.3 million, which translated to net income of $0.11 per share. By contrast, analysts were looking for earnings of just $0.10 per share on revenue of $125.5 million. So why the drop?

In short, the market initially chose to focus instead on iRobot's light 2014 earnings guidance, which calls for net income per share between $1 and $1.15. By comparison, the midpoint of that range stood well below Wall Street's expectations for earnings of $1.14 per share.

However, after opening down around 4% this morning, iRobot stock has gradually clawed its way up to an impressive 12% gain as of this writing. So what changed?

Guidance could be conservative
First, consider the evolution of iRobot's full-year earnings guidance last year. 

Last February, for example, iRobot called for 2013 earnings per share of $0.57 to $0.72. Then in April, iRobot raised its full-year guidance to a range of $0.80 to $1 per share. Then in October, the company narrowed its expectations to a range of $0.90 to $0.95 per share.

When all was said and done, iRobot's 2013 earnings came in at $0.94 per share, or the high end of its already-raised, narrowed guidance.

Long story short: It's difficult to accurately gauge full-year earnings, and investors are taking solace knowing iRobot has made a consistent habit of underpromising and overdelivering.

Home robots are just getting started
Next, if we're to believe comments from management during the subsequent conference call, things are going swimmingly for the robotics specialist in the home.

Home Robots are expected to lead the way again this year, with sales expected to grow 17% to 20% and comprise around 90% of total company revenue -- a great thing considering iRobot's Defense & Security business is anticipated to remain depressed and perform at 2013 levels.

Relatedly, CEO Colin Angle elaborated that sales of iRobot's revolutionary new Roomba 880 "have exceeded those of all other new products over the same timeframe." That's no small feat considering the Roomba 880 is currently exclusive to iRobot's website and selling at a steep $700 each.

Irobot Roomba

iRobot's new Roomba 880. Image source: iRobot.

Better yet, Angle provided some compelling long-term perspective with the following statements:

The robotic vacuum cleaner market grew roughly 30% from 2010 through 2012 and represents approximately 15% of vacuum cleaner sales. That revenue share is comparable to the level of other disruptive household appliances, such as the microwave oven and dishwasher, at the same stage of their life cycles, 10 to 15 years following introduction. We believe that as awareness of the category continues to expand, we could see an adoption rate similar to those other appliances.

Meanwhile, the jury's still out on the new Scooba 450, which was introduced at CES this year and is the first major new large-format floor Scooba floor-washing bot in almost eight years. Still, Angle insists they believe it will enjoy "a large addressable market, both domestically and overseas."

Telepresence is still in its infancy
Finally, iRobot didn't provide much in the way of updates for its Ava 500 video collaboration bot, only saying it remains in beta "with several global 2000 companies from various industries." However, it did sell around $1 million in product last quarter related to its RP-VITA telepresence robots, which only began to gain traction in the health care industry last May.

As it stands, while investors shouldn't expect iRobot's Remote Presence business to make any material contributions to growth this year, it remains a potential bright spot down the road.

Foolish takeaway
I'll admit shares of iRobot look expensive trading around 40 times last year's earnings. But that's of little consequence if iRobot's most significant growth still lies years down the road. In the end, the market's a forward-looking machine, and at this point iRobot's very long-term potential has never looked better.

Consider the six incredible growth stocks in this free report
But iRobot's not the only great growth stock out there. So where else should you look?

Consider the investing expertise of Motley Fool co-founder David Gardner, who has proved skeptics wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Steve Symington owns shares of iRobot. The Motley Fool recommends iRobot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers