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Why iRobot Stock Went Up in May

By Jon Quast – Updated Jun 4, 2020 at 9:32AM

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It's getting back $30 million from Uncle Sam, and its financial strength caught Wall Street's attention.

What happened

At the end of April, consumer-robot company iRobot (IRBT -0.55%) reported earnings for the first quarter of 2020 that featured down revenue and a weak outlook. The news sent the stock down. But it didn't stay down for long. It rose 20.9% in May, according to data provided by S&P Global Market Intelligence.

It's a short-term period, but iRobot has been a surprising winner so far in 2020, crushing the market average. Here's why it's rising.

IRBT Chart

IRBT data by YCharts.

So what

The COVID-19 pandemic complicated iRobot's business in Q1. The coronavoris disrupted the company's supply chain, causing iRobot to fail to fully meet demand for certain products. It was a big reason quarterly revenue fell 19% year over year. Moreover, the company expects second-quarter revenue to drop further from Q1.

The results and guidance weren't great. But after falling a little, iRobot stock has steadily risen. A couple of prominent analysts raised their price targets during May, a bullish signal for investors. Reasons for the upgrades included the strength of iRobot's technology and the possibility the stock was undervalued. Consider it was about $60 per share on May 1. That's over 50% down from where it traded in early 2019.

Finally, much of iRobot stock's monthly gain occurred right after it presented at J.P. Morgan's Global Technology, Media and Communications Conference on May 13. It suggests that Wall Street liked what CEO Colin Angle had to say. One encouraging note from the conference was the company's exclusion from tariffs on U.S. imports from China.

Angle was asked how iRobot would use the tariff exclusion to its advantage. Would it reduce prices to gain market share or would it keep prices steady to grow profit margins? Angle said the tariff exclusion is for all imported autonomous vacuum cleaners, helping iRobot's competitors as much as iRobot. But it's getting back over $30 million in already-paid tariffs, allowing the company some financial flexibility to better compete on price if needed.

Analyst upgrades and a reminder of its financial strength were enough to send iRobot stock higher in May.

A businessman rides a rocket expelling cash exhaust over a multi-colored bar chart.

Image source: Getty Images.

Now what

iRobot shareholders should pay attention to the company's evolving business model. Notice that in Q1, it had a direct relationship with over 5 million customers through email and its app. That's up from around 4 million just last quarter. Direct customer relationships are crucial to iRobot's aspirations of developing recurring-revenue streams, and progress here is an encouraging sign.

Jon Quast owns shares of iRobot. The Motley Fool owns shares of and recommends iRobot. The Motley Fool has a disclosure policy.

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