Nowhere is it written that the geek shall inherit the Earth. Don't let that stop you from admiring a cool consumer- and military-robotics company like iRobot (NASDAQ:IRBT), nor from wondering whether tapping into your inner geek is the secret to a healthier portfolio.
Since iRobot began in the legendary MIT robotics lab in 1990, it has bridged science fiction and reality, defying consumers' perception that robots are little more than entertaining circuitry. Its brainy engineers have produced countless robotic applications; to date, their biggest successes have been robotic floor cleaners and life-saving tactical deployments on the battlefield.
Despite iRobot's visionary ways, investors don't have to wait for the future to buy in to a fiscally viable entity. The company is squarely profitable and growing quickly. This past year, its revenues soared 49% to hit $142 million. Gross profits and the bottom line grew even faster. The company produced $2.6 million in net income last year, a nearly 12-fold improvement year over year. Sure, if you take that $2.6 million and divide it by $142 million, you'll find some pretty measly profit margins. Still, this company is just starting to come into its own. By next year, analysts expect its profitability to more than triple from last year's levels, even with a bottom-line dip here in 2006.
If that still leaves you unimpressed, let's look a few more years ahead. Even though the company's pre-tax operating margin was 2% last year and a mere 0.4% in 2004, iRobot expects those margins to reach the high teens in five years. That would be a nearly 10-fold improvement, even if the company's growth ran stagnant -- but that's unlikely. iRobot expects its top line to grow by as much as 35% this year, and Wall Street predicts better-than-30% growth in 2007. If it grows at a 30% clip over the three following years, iRobot will have more than $550 million in revenues come 2010.
High teens? Let's go with 18%. That would translate into $99 million in pre-tax operating profits, or nearly $4 a share. Sure, the share count is likely to inch higher between now and then. But even if dilution brings that sum closer to $3 a share, it still means that you can buy in to a dynamic growth stock for less than 10 times its pre-tax operating profits, based on 2010's projected showing.
So what do these iRobot devices look like? Most folks know the company for its Roomba models; the round, robotic vacuum cleaners have been selling briskly since the FloorVac was introduced four years ago. Along the way, updated models with more features and greater efficiency have cemented the brand's leading-edge status. iRobot has sold more than 1.5 million Roombas, which translates into just 1% of the country's households. There's another 99% out there waiting to be conquered.
Recently, iRobot rolled out the Scooba model for flat, hard floors. Surpassing the dirt-sucking wonder of the Roomba, the Scooba replaces old-fashioned mops and buckets by squirting out a proprietary cleansing solution designed in cahoots with Clorox (NYSE:CLX). It then proceeds to scrub, vacuum, and dry the floor in a single pass. It's a pretty impressive new line for the company, and it's won recent accolades in magazines such as Time and Popular Science. The Scooba is already selling at retailers such as Target (NYSE:TGT), Sears (NASDAQ:SHLD), and Sharper Image (NASDAQ:SHRP). Lowe's (NYSE:LOW) will come on board later this year. Because of the potential revenue stream from perpetual replenishment of its cleaning fluid, the Scooba may become an even more important appliance for iRobot than the Roomba.
Let's not forget iRobot's more gung-ho side. The U.S. military has deployed more than 300 of iRobot's PackBots in Afghanistan and Iraq. Rolling like miniature tanks, PackBots can travel through all types of rugged terrain. They come with cameras for surveillance missions and robotic arms to help locate and safely disarm roadside bombs. Whatever your opinion of our country's military engagements, you can probably appreciate the PackBot's role in sparing human casualties. Life is a bipartisan pursuit. Perhaps that's why Sen. John Kerry stopped by to congratulate the company last month, after it was awarded a $26 million contract by the U.S. Navy for 213 more PackBots. Smaller, larger, and more advanced military robots are all in the works.
In the end, iRobot is too smart to fail. It's rich in patents, brainpower, and relevance in the consumer and military markets. Even if the numbers don't seem all that impressive, like all great technologies, good things come to those who wait.
The geek will inherit the Earth. So what are you waiting for? Get your geek on.
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.
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Longtime Fool contributor Rick Munarriz does not own shares in any of the companies mentioned in this story. The Fool's disclosure policy is a friend to all fleshy humans. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
