It's been an up-and-down (but more down than up) year for iRobot (Nasdaq: IRBT) shareholders, who've endured first the agony of poor guidance and then the ecstasy of a major earnings beat. Shares are slowly inching back up to breakeven, but there are a few key things to pay attention to in iRobot's future. The answers to these three questions will go a long way toward determining if iRobot's a stock for the long haul or if it's a one-hit wonder on its way out.
1. Does iRobot need government spending?
A major part of iRobot's winter wipeout was a decline in heavy-duty battle-bots for the government. Growth continues to be driven by sales of consumer bots, but the company's bottom lines have been erratic -- free cash flow especially so.
IRBT Total Return Price data by YCharts
Military preferences have shifted toward unmanned aerial vehicles, leaving less room for iRobot's ground-and-pound bots, which were built in part under contract to Boeing (NYSE: BA) until the plug was pulled on that funding last year. But iRobot may do just fine with its consumer-oriented bots, which include several different types of cleaning assistants. From 2007 to 2011, sales of home robots grew 53%, but revenue has grown 87% and net income is up nearly 350%. But not everyone needs or wants a Roomba. That's why the second question matters…
2. Can iRobot branch out?
There are four robots in the iRobot home lineup, and they all clean a different surface. Tasks beyond a simple "go here and scrub this" can quickly ratchet up consumer costs, but why not devise a lawn-mowing bot? Honda (NYSE: HMC) is bringing one to market, and there are several other competitors, but none have the same robotic cachet as iRobot.
Other alternatives may include wider industrial uses. Amazon.com (Nasdaq: AMZN) bought warehouse-optimizing bot maker Kiva earlier this year for $775 million, which is more than iRobot's current market cap. That's a big untapped niche iRobot missed out on, and it's unlikely to offer serious competition to an Amazon-financed bot-maker with a big lead. The company's also prepping a telemedicine robot, but I'm frankly somewhat dubious that a rolling video screen will have widespread appeal, no matter how automated its movement. What can iRobot build that will catch fire?
3. Can iRobot succeed against stiffer competition?
My colleague Rich Duprey points out a laundry list of potential competition that includes not only Honda and Amazon, but Google (Nasdaq: GOOG) and its self-driving cars (what else could they automate?), and several other very well-heeled high-tech titans. Automation can be applied to all sorts of tasks, and iRobot's big advantage was becoming the first-mover in a narrow range of home cleaning bots. Google or Amazon or Honda may simply choose to buy out the company for access to expertise in that sector, but it wouldn't take much to outspend iRobot on R&D. Google spent 143 times as much on R&D as iRobot last year and will certainly increase the gap further by the end of 2012.
One way to keep ahead of big iRobot news is to keep a close eye on potential partners and competitors. Now that it's bought its way into industrial robotics, Amazon could take on either role. It's so important to so many companies that the Fool's devoted some of our best tech analysts to Amazon coverage in our new premium research service. Every subscriber gains access to a full year of updates for less than the cost of a single trade. Interested in finding out more? Click here to get started.
