Happy day. iRobot (NASDAQ:IRBT) finally did something right.

Oh, I'm not talking about yesterday's earnings beat (although everyone else is). After all, iRobot "beat" estimates by losing only $0.07 a share. And while that's a dime better than the consensus forecast on Wall Street, the fact remains that iRobot lost $0.07 a share. Losing any amount of money is no occasion for jubilation in my book.

Nor am I talking about iRobot's guidance. With annual revenue posited at $290 million to $310 million, a maximum expected profit of $0.04 per share, and the very real possibility that the company won't earn a penny, iRobot promised us no more yesterday than it had already told us before.

No, what really has me optimistic about iRobot is that while it lost money in the first quarter -- and could very well fail to earn money over the course of an entire year -- it generated cash flow beyond my wildest dreams. In short, this troubled Motley Fool Rule Breakers recommendation has finally put to rest my worries about its cash situation.

Vacuuming up cash
Reversing course from a trend I highlighted as far back as July, iRobot finally made good on promises to improve working capital management. In February, CEO Colin Angle boasted that iRobot had "aggressively managed inventory levels and focused on improving liquidity in light of the current market environment." He claimed iRobot now had "a more efficient operating model."

So how's that working out?
Pretty well. Summing up Q1, Angle declared: "Our continued focus on managing working capital ... increased our cash position at the end of the first quarter to more than $54 million." With Roombas apparently flying off the shelves at Best Buy (NYSE:BBY), Target (NYSE:TGT), and Sears Holdings (NASDAQ:SHLD) -- and international sales doing even better -- inventories now stand fully 34% lower than they did one year ago. As a result, iRobot generated $13.6 million in free cash flow -- a worthy sequel to last quarter's $18.2 million cash haul. If Angle & Co. can continue this performance year-round, then a run rate based on these two quarters' numbers suggests the incredible result of more than $60 million in annual cash flow at the company.

Does that sound too optimistic? For a firm that has never before gotten out of the single digits in annual free cash flow, I admit I'm hesitant to predict anything of the sort. That said, if iRobot can keep up this kind of performance, even after today's startling 20% run-up in share price, the company remains incredibly underpriced.

Foolish takeaway
You pays your money and you takes your chances ... but right now, I'd say the odds look good.

But do the Fools at Motley Fool Rule Breakers agree? Take a free trial and find out.

Fool contributor Rich Smith no longer owns shares of iRobot, and in fact, owns no shares of any company named above. iRobot is a Motley Fool Rule Breakers recommendation. Best Buy is a Motley Fool Stock Advisor recommendation. Best Buy and Sears Holdings are Motley Fool Inside Value recommendations. The Fool owns shares of Best Buy. The Motley Fool has a disclosure policy.