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Why iRobot Stock Lost 13% in July

By Demitri Kalogeropoulos - Aug 6, 2020 at 8:28AM

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Investors weren't happy to learn that profitability challenges will be around deep into 2021.

What happened

iRobot (IRBT -0.41%) shareholders missed a big rally last month. Their stock fell 13% compared to a 5.5% increase in the S&P 500 in July, according to data provided by S&P Global Market Intelligence.

The robotic cleaning device specialist is still trouncing the market in 2020, with shares up 45% so far this year.

A robotic vacuum cleaner at work.

Image source: Getty Images.

So what

iRobot reported generally strong fiscal second-quarter results, with sales and profit gains beating the upgraded outlook management had issued. Revenue grew 8%, thanks mainly to booming demand for premium vacuum robots. iRobot also logged a big increase in profitability as it returned to positive earnings following a sharp decline in its first quarter.

Now what

Yet growth stock investors focused instead on a few warning signs ahead, including the likelihood of reduced earnings power as tariff charges increase either in late 2020 or early 2021. iRobot is expecting to log higher manufacturing costs through most of next year as it brings its Malaysia factories fully online.

The more immediate question is how well iRobot will do this holiday season, which is promising to pair strong demand in some niches with recessionary selling conditions in places like the U.S. and Europe. The good news is that its quick return to sales growth implies that this business has an attractive long-term outlook even if the next few quarters will be bumpy.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends iRobot. The Motley Fool has a disclosure policy.

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