If You’ve Been Waiting To Buy iRobot Now Is A Good Time

Skittish Market Sends iRobot Down 10%

The premarket price-action in iRobot (NASDAQ: IRBT) shows just how skittish the broad market is right now. The company reported a stellar quarter, gave highly favorable guidance, and only briefly mentioned rising costs which was enough to take the bottom out of share prices. Rising costs are a concern, we are not blowing this off, but we do think the knee-jerk reaction to the news is a bit overblown. If you’re like us and interested in this stock (we think you should be) this looks like as good a time as any to start buying some shares. 

iRobot Has Blowout Quarter, Raises Guidance 

We’ve had iRobot on our radar for a long time and not surprised by the Q1 results. The company is driven by a combination of secular trends that promise to drive this company’s growth for a long time to come. The $303.3 million in net revenue is up 57.5% from last year and, while sequentially lower, an acceleration of growth from the prior quarter. The revenue was not only strong but it also beat the consensus by nearly 1500 basis points despite a recent and strong, uptick in the consensus estimate. 

The company reports strength in all geographic regions driven by robust demand for all product lines and revenue streams. The EMEA region was strongest with 74% growth, Japan is 2nd strongest with 53% growth and the U.S. trailed with only 40% growth. Growth in the U.S. might have been stronger if not for the limited availability of premium products related to the global chip shortage. Direct-to-consumer sales grew 146% underpinned by strength in eCommerce; eCommerce sales surged 90% to account for 56% of net revenue. 

Moving down, there was some pressure on margins due to mix, expanded product lines, and the aforementioned impact of microchip shortages. Product mix was described as more even than in previous quarters due to the expanded availability of lower-end models, low availability of premium models, and the rising costs of components and freight. Even so, the GAAP earnings of $0.41 beat the consensus by $0.62 and reversed a loss in the year-ago period. There is nothing to not like about that. 

iRobot Guidance Spooks The Market 

The iRobot guidance is good but does reflect the impact of rising costs. While the company raised its outlook for revenue to a range above the previously stated it only reaffirmed the EPS outlook. The silver lining is the company has already commented to affect the EPS guidance is cautious and upside surprises if not improved guidance should be expected. What it comes down to is how the company is able to control costs and how the pricing of components and chips trends into the end of the year. In our view, both the revenue and EPS guidance is likely too low given the strength we expect from the global economic reopening. 

“While it is still early in the year and there is substantial work ahead, we are very excited about our potential to deliver upside to our current targets, assuming demand signals remain favorable and we successfully mitigate the semiconductor chip constraints that are disrupting a wide range of industries. As we execute on our strategy, we remain confident about our ability to capitalize on a wide range of opportunities to sustain our top-line growth and drive meaningful profit and EPS expansion in 2022…” says Colin Angle, chairman and chief executive officer of iRobot

The Technical Outlook: iRobot Pulls Back To Support 

Shares of iRobot took a big hit from the margin/EPS outlook and dropped more than 10% in the wake of the report. This move is driven in part by a high, 17% short-interest that may keep downward pressure on prices in the near term. The caveat is that price action appears to have stalled out above a key support level that may entice the shorts to start covering. If support confirms at the $90 level we’d start looking for the next buy signal because we see this stock moving definitively above the $130 level before the end of the year.