Please ensure Javascript is enabled for purposes of website accessibility

Attack of the iRobot

By Rick Munarriz – Updated Nov 15, 2016 at 4:30PM

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

The consumer robotics specialist has a blowout quarter but tempers its enthusiasm.

It's settled: The robots truly are taking over. Consumer and military robotics specialist iRobot (NASDAQ:IRBT) proved that humans can be all too human if they're trying to take a shot at the company's earnings power.

Analysts were expecting iRobot to earn $0.09 a share on $53.3 million in revenues for its third quarter. Instead, the company got out a Roomba to sweep Wall Street away: It earned $0.39 a share -- more than four times the estimate -- on $55 million.

The results were mostly in line with last year's third-quarter showing as the company was going public, but few were expecting anything quite like this. The business had actually closed out the first half of the year in the red. Now the only thing disheartening about the iRobot report is that it is still sticking to its summer guidance that called for pretax profits for all of 2006 to come in between breakeven and $3.8 million. That's a bitter pill to swallow -- the business has already produced $5.6 million in pretax income through the first nine months of the year.

A pretax loss likely during the seasonally potent holiday quarter? Ouch!

For an explanation, management is pointing to holiday ad spending to promote its home products as well as ramped-up R&D spending to keep the company's pipeline of exciting robotic applications flowing. In other words, the company sees its huge third-quarter showing as a way to spend aggressively in the current quarter, yet still walk away at the high end of its original 2006 guidance. I'm not really happy about that kind of sandbagging, but I understand the need to invest to stay on the leading edge of robotics.

During last night's conference call, management discussed some of its intriguing creations. By 2008, we can expect the Warrior. Unlike the company's smaller PackBots, which have been aiding troops overseas by defusing roadside bombs, the Warrior is a 250-pound machine that can move at 12 miles per hour and help carry artillery as well as assist soldiers in their missions in other ways. In short, the Warrior will be as close as you can get to having robotic soldiers fighting alongside human combatants. Let your imagination wander, without heading out to rent the Terminator trilogy.

iRobot's presence in the military has been a big driver lately. It has helped offset a decline in home product revenue. However, that dip begs for more clarification. Sales of the Roomba and Scooba products have fallen by 24% through the first nine months of the year, yet the actual sell-through rate of the company's consumer robotics has soared 50% higher. Why the dramatic disparity? Well, in 2005, retailers had to provide iRobot with huge lead times, since its robots were being shipped over from the Far East. Those retailers stocked up early for the holidays. They probably overstocked, too. This year, old retail clients such as Target (NYSE:TGT) and more recent partner additions, such as Lowe's (NYSE:LOW) and Stock Advisor recommendation Costco (NASDAQ:COST), are just now starting to stock up for the holidays. So even if it seems as if the popularity of the company's home products is waning, the actual sell-through is doing just fine, and we should see the results during the fourth quarter.

The popular Rule Breakers newsletter recommendation is trading around its $24 IPO price. It is. That's disappointing. So is watching profitability float gingerly above the breakeven mark this year. However, there are so many cool things and products brewing at iRobot that it still makes perfect sense as a long-term investment for growth-stock fans. Like its upcoming battlefield automaton, iRobot remains every inch the Warrior.

Feel like a Rule Breaker now, do you? Check out David Gardner's growth-stock newsletter service as part of a free 30-day trial subscription to see whether cool stocks like iRobot belong in your portfolio.

Longtime Fool contributor Rick Munarriz is a fan of iRobot, but he does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

None

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
$57.81 (-0.34%) $0.20
Target Corporation Stock Quote
Target Corporation
TGT
$152.61 (-0.23%) $0.35
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$466.40 (-4.26%) $-20.77
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
LOW
$188.13 (0.01%) $0.01

*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
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

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.