Right off the bat, Rich and I can't seem to agree this week. He enjoyed I, Robot the movie, while I found it a chore. We further disagree on how to value a futuristic growth stock. Rich relies on last year's results -- what a dinosaur he can be sometimes! Basing iRobot's (NASDAQ:IRBT) prospects on what it earned last year is like grading Shaq as a basketball player based on his game in elementary school.
Does iRobot appear expensive based on the past? You bet. Has the company publicly indicated that it will grow pre-tax operating margins 10-fold in five years? Absolutely. Does that make it seem as if Rich is hitting below the belt by plugging 35% bottom-line growth into a discounted cash flow calculator, when the reality will be many times greater? You decide.
"At $28 per share, the market is assuming that iRobot will beat analyst estimates and grow its profits by nearly 50%," my fellow Fool writes. "Each year. Every year. For the next 10 years. Sorry, folks, but that's simply not credible."
If Rich is going to hogtie his argument around last year's numbers, let's turn those tables on him. Keep in mind that analysts already expect earnings to more than triple from 2005 to 2007. On an annualized basis, that's considerably more than 50%. Margin expansion will continue for a few years beyond that.
iRobot's going to have a pretty sweet ride into the future, just like fellow robotics-friendly Rule Breakers pick Intuitive Surgical (NASDAQ:ISRG), which is carving up the way operating rooms, well, operate in leading hospitals nationwide.
iRobot is here to save the day, Rich. You seem a bit like Sarah Connor in the Terminator films when it comes to dissing robots. Let me channel her closing words from the 1991 sequel:
The unknown future rolls toward us. I face it, for the first time, with a sense of hope. Because if a machine, a Terminator, can learn the value of human life, maybe we can, too.
Right on, Sarah.
iRobot was recently recommended to subscribers of the Rule Breakers newsletter service. The average pick of the growth stock research service is up 33%, while the S&P 500 has mustered a mere 9% average advance in that time.
Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.
Longtime Fool contributor Rick Munarriz does not own shares in any of the companies mentioned in this story. The Fool's disclosure policy has an endoskeleton of titanium and a heart of gold. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
