Why iRobot Corporation Shares Short-Circuited

Batteries aren't included for shareholders after iRobot reports its first-quarter results. Find out if this dip is a buying opportunity or a reason to keep your distance.

Apr 23, 2014 at 3:00PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of iRobot (NASDAQ:IRBT), a developer and marketer of robots for the defense and security industry, as well as home robots for consumers, short-circuited and fell as much as 10% after the company reported its first-quarter results after the closing bell last night.

So what: For the quarter, iRobot delivered revenue growth of 7.5% to $114.2 million, but saw its net income slide to $5.3 million, or $0.18 per share, from $8.4 million, or $0.29 per share. EBITDA also declined by $1 million to $14.2 million from the year-ago quarter. Still, this was good enough to top Wall Street's expectations by $0.02 per share. Looking ahead, iRobot is forecasting $138 million-$145 million in revenue for the second quarter with EPS of $0.15-$0.25, and $560 million-$570 million in revenue with $1-$1.15 in EPS for the full year. Although both the second-quarter and full-year ranges are in line with the Street's expectations, the midpoint of iRobot's guidance is a tad lower than current consensus estimates, which appears to be today's source of weakness.

Now what: This is a tough call for investors because shares appear to be getting unfairly beaten for decent top-line growth during the quarter and guidance that fell within the range of the Street's expectations. In fact, research firm Needham came out defending iRobot today following its results, reiterating its "buy" rating on the company. However, we're also talking about a company valued at a pricey 26 times forward earnings even after today's tumble. Keep in mind that iRobot is exposed to consumers' ever-changing buying habits, and there's always uncertainty surrounding government spending. As such, while I do see the downward move as perhaps excessive given the news, I'm in no rush to suggest that shares are a good value for investors yet.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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