"Forward, the Light Brigade!"
Was there a man dismay'd?
Not tho' the soldier knew
Someone had blunder'd:
Their's not to make reply,
Their's not to reason why,
Their's but to do and die:
Into the valley of Death
Rode the six hundred.
-- "The Charge of the Light Brigade," Alfred, Lord Tennyson
Rewind!
OK, we're not looking at six hundred soldiers here -- just two determined duelists in a battle gone awry. National Poetry Month demands a few concessions to artistic license. Fifty-two weeks ago, two of our finest Foolish fighters entered the ring: one to defend the honor of robot designer iRobot (NASDAQ:IRBT), the other to bring the highflier down to Earth.
Rick Munarriz argued for the company with aplomb, telling us that "iRobot is too smart to fail," and that good things come to those who wait. Rich Smith hit back with serious valuation concerns: "If Hollywood has taught us anything -- in I, Robot, Alien, and the various Terminator flicks -- it's that robots are the future. But if it's taught us anything else, it's that robots aren't necessarily our friends. At this price, neither is iRobot's stock."
Our defender of the faith counterpunched immediately. "If Rich is going to hogtie his argument around last year's numbers, let's turn those tables on him," Rick said. "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."
Mr. Smith used his last breath to decry a lack of cash flows. "As for guesstimating how much this fourth-string contender could earn in five years -- when it's not earning a red cent in real cash profits today -- that's an exercise in pure guesswork. If iRobot hasn't produced dime one in cash profits after 16 years in business, I'm less than sanguine about estimates of its future profitability."
Then Rich went down in a blaze of glory. 53% of 588 voters sided with Rick's bull argument; 32% voted for Rich and his bearish soliloquy; and 15% couldn't pick a clear winner. When the dust settled, the bull had prevailed.
Fast-forward!
Snap back to the present day. iRobot has seen its share price fall by 48% since that fateful Duel, despite releasing a string of new products into the consumer channel. Even so, the price-to-earnings ratio (as flawed as that metric may be) remains a nosebleed-inducing 96 times trailing earnings.
In our Motley Fool CAPS investor brainpool, iRobot is a lowly two-star stock, based on more than 800 user ratings. The 87% of bulls among them are a tech-savvy bunch, believing in companies like Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Intuitive Surgical (NASDAQ:ISRG), while the doubters seem leery of soaring valuations. Google (NASDAQ:GOOG), Research In Motion (NASDAQ:RIMM), and Vonage (NYSE:VG) are other stocks on their blacklists.
Foolish judgment
Whether gauging success by market performance or by investor confidence, then, it seems clear that the bear is the rightful title holder here. Rick won the first battle -- but Rich landed the Versailles Treaty in the end.
Further saber-rattling Foolishness:
Netflix is a Motley Fool Stock Advisor selection, while iRobot and Intuitive Surgical dwell on our Rule Breakers scorecard. Free 30-day trials for everyone! Read all about it!
Fool contributor Anders Bylund is a Netflix and Intuitive Surgical shareholder, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always up for a good fight.
