There's no question that automation and robots are playing increasingly large roles in our lives. But we're not yet at the point where we can buy robot assistants to cook for us or clean our homes, although for my sake, I hope the arrival of such technology isn't far off.
There's one area of housekeeping, though, where robots are gaining wide adoption: cleaning floors. And in that business, iRobot Corp. (IRBT 0.58%) is far and away the industry leader. That's why I think now is the time for investors to have its stock in their portfolios.
Mapping technology is a key advantage for iRobot, one that it can extend into new markets. Image source: iRobot.
Where iRobot stands today
Since the 2016 sale of its military robot unit, iRobot has been entirely focused on the consumer market -- and in particular, on the cleaning robot market with automated vacuums, mops, and pool cleaners. It has maintained a market share over 60% in the robotic vacuum cleaner space even as new competitors have emerged. And the segment's growth overall has allowed iRobot to nearly double its revenue in the past five years.
That renewed focus on consumer robots has also allowed the company to expand its margins. In the first nine months of 2017, gross margins rose 270 basis points to 50.2% and net income jumped from $28.3 million to $46.3 million.
If iRobot can continue to leverage its position to grow its top line while also expanding margins, this could be a very profitable business long term.
Why I'm bullish on robotic vacuums and mops
According to iRobot's December investor presentation, robotic vacuum cleaners only account for 21% of the $7 billion market for vacuums over $200. That leaves a lot of upside for iRobot and its 64% share of the robotic vacuum market if robots overall continue to gain market share.
What makes this business particularly attractive is that iRobot can use its robotic vacuum technology to expand into adjacent markets. It's done that with mopping and pool cleaner so far, but product extensions like lawnmowers have been rumored to be coming for years.
As iRobot improves its mapping and cleaning technology, it should be able to expand its lead over competitors. The millions of connected devices it has in homes already provide it with a vast database of feedback others won't be able to match.
A platform iRobot can build on
Vacuums may not be the first thing you think of when connected devices or the Internet of Things are discussed, but iRobot's products could be key components of the developing smart home suite. As the technology advances, vacuums, mops, mowers, and other devices will know when you leave the house, and clean while you're away.
In short, it's not just about individual devices -- it's the platform iRobot is building with its mapping and connected technology that will give it a lasting advantage, and its momentum as we begin 2018 is good reason to be bullish on the stock. That's why I'm adding a thumb up CAPScall to iRobot on My CAPS page.
