Late last week, iRobot Corporation (IRBT +0.00%) announced that its board approved a new $50 million stock repurchase program. That's a hefty sum, considering iRobot's entire market capitalization is still under $1 billion as of this writing. So is this a smart move by the robot maker?
Absolutely. Here's why.
All new(ish)!
First, keep in mind that this $50 million repurchase authorization isn't really new. Rather, it replaces a $50 million program that iRobot unveiled around this time last year and that is set to expire at the end of next month. It runs from May 1 of this year through April 30, 2016. And last year's program, for its part, replaced a $25 million buyback iRobot approved in early 2013.
iRobot CEO Colin Angle even used the same verbiage as before to describe the company's thought process: "The Board's authorization of a share repurchase program reflects our confidence in the health and long-term outlook of the company. With a strong balance sheet and cash flows, we believe we can take advantage of volatile market conditions to buy back our shares while maintaining the flexibility to make strategic investments in our future."
For perspective, iRobot ended last fiscal year with no debt and $222 million in cash and short-term investments on its balance sheet, all while generating cash flows from operations in 2014 of $40.6 million. We also know that the flexibility of which Angle spoke is crucial, as the company regularly aims to invest around 12% of annual revenue on research and development. Sure enough, last year that amounted to just over $69.4 million, or 12.5% of total 2014 sales. Finally, based on comments from iRobot's CFO earlier this year, we know 20% to 25% was dedicated to advancements in key future technologies, with the remaining 75% to 80% focused on actual product development -- that is, making sure iRobot's current core line of products continues to maintain a competitive edge in their respective markets.
iRobot knows when to act
But this also doesn't guarantee iRobot will act on the authorization. The 2013 program, for example, went completely unused. And last year, iRobot only spent around $1.7 million to repurchase 55,973 shares at an average price of $29.97 per share. To its credit, that turned out to be an astute purchase, made right around iRobot's 52-week-low last year, and a 10% discount to the stock's current trading price. And though it was a drop in the bucket compared with what iRobot could have repurchased, it provides perspective on the company's discipline for making the most of its available cash.
As it stands, iRobot stock is down around 22% over the past year, and 6% so far in 2015. For that, investors can most recently thank what the market perceived as disappointing fourth-quarter results and conservative guidance for the year ahead. Of course, the market's demands are a relative measure; iRobot's revenue was in line with what management had told investors to expect, and earnings came out well above both iRobot's guidance and analysts' consensus estimates.
However, like so many other global companies right now, iRobot expects both macro headwinds and currency devaluations to hold back what would otherwise be solid growth overseas. All the while, the market seems to be ignoring that iRobot is poised to monetize a number of tantalizing new technologies in 2015, including visual navigation, tablet interfaces for its defense robots, and integration with the cloud -- all of which, in Angle's words, will help iRobot transform "from a leader in the robot vacuum cleaner market, to a technology company developing navigation connected devices for the home."
But much to our fickle market's chagrin, these technologies won't drive immediate financial results for iRobot. In the end, as iRobot continues to position itself for long-term success, it simply wants to make sure it has the funds available to take advantage of any resulting short-term volatility. As a long-term-oriented investor myself, that's why I think iRobot's latest share repurchase authorization is a great idea.
