Please ensure Javascript is enabled for purposes of website accessibility

Here's Why iRobot Stock Came Crashing Down Today

By Jon Quast - Updated Feb 2, 2021 at 11:16AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Traders are moving on from the short-squeeze plays.

What happened

Shares of iRobot (IRBT 1.53%) came crashing down on Tuesday, as short-squeeze mania died down on Wall Street. The stock saw incredible gains in January as traders bought shares of companies with a high amount of short interest, hoping to induce a short squeeze. But it appears they're now moving on. As a result, iRobot stock was down 15% as of 10:40 a.m. EST.

So what

According to data from Nasdaq, a whopping 10.5 million shares of iRobot were sold short as of Jan. 15. This number has been rising for the last three months. For perspective, the company had more than 28.1 million shares outstanding as of its latest quarterly update. So roughly 37% of all shares are sold short. And given the stock's low trading volume, it would take 20.3 days to cover -- which is quite a long time as far as these things go. 

A rising red arrow breaks near the top, resulting in the tip of the arrow pointing down.

Image source: Getty Images.

This caused traders to buy shares of iRobot in January, hoping for a short squeeze like GameStop's. iRobot stock was up about 50% last month. However, now that GameStop stock is in a free fall, traders are abandoning the short-squeeze craze. That's why iRobot is down today.

Now what

This outcome was pretty predictable. Just last week, I highlighted iRobot as one of three stocks in my portfolio that could crash down once this short-term frenzy abated. However, as a long-term investor, I'm not concerned. In fact, I think those still betting against iRobot by shorting it might be missing the bigger picture. The home-cleaning robot space is competitive, yes. But, with its latest software update, the company is building a strong, direct relationship with its customers that should help it maintain its leadership position for years to come. To me, that's worth holding onto even as the stock falls today.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

iRobot Stock Quote
iRobot
IRBT
$43.04 (1.53%) $0.65
Nasdaq, Inc. Stock Quote
Nasdaq, Inc.
NDAQ
$159.28 (0.65%) $1.02
GameStop Corp. Stock Quote
GameStop Corp.
GME
$135.21 (-4.79%) $-6.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.