We have issued an updated research report on iRobot Corporation (NASDAQ:IRBT) on Aug 27.
The industrial robot maker currently carries a Zacks Rank #4 (Sell). Its market capitalization is approximately $1.8 billion.
Let’s delve deeper and discuss what led to its poor investment appeal.
Share Price Performances & Over-Valued Stock: Market sentiments have been against iRobot for quite some time now. Its stock price has decreased roughly 31.1% in the past three months compared with the industry’s decline of 8.5%. Also, it is worth noting that shares of the company have lost 31.2% since the release of second-quarter 2019 results on Jul 23, 2019.
The company’s shares currently seem overvalued compared with the industry, using the P/E (TTM) valuation method. The stock’s current multiple is 20.22x, higher than the industry’s multiple of 15.62x. Also, shares of the company are trading above the industry's three-month highest level of 17.15x. This makes us cautious about the stock.
Tariff Woes: The company is currently facing severe headwinds from tariffs imposed by the U.S. government on imports from China and other foreign nations. The Republic-lead administration in the recent past imposed 25% tariffs on China imports, which include robotic vacuum cleaners manufactured in Beijing. The tariff rate is higher than 10% imposed in September 2018.
Higher tariff rates will likely put additional pressure on iRobot’s revenues and earnings. For 2019, tariff-related costs are predicted to be $35-$40 million versus the previously mentioned $20-25 million. Also, revenues are predicted to slightly decline year over year in third-quarter 2019 as tariff woes are expected to adversely impact order activities of some major retailers (including Amazon (NASDAQ:AMZN)). Annual projections too have been revised down due to tariff woes (explained below).
Weak Annual Projections: iRobot revised down earnings and revenue predictions for 2019. Earnings are anticipated to be $2.40-$3.15, down from the previously mentioned $3.15-$3.40, whereas, revenues are predicted to be $1.2-$1.25 billion compared with the previously mentioned $1.28-$1.31 billion.
Furthermore, earnings estimates for iRobot for 2019 and 2020 have been lowered in the past 60 days. Currently, the Zacks Consensus Estimate for the company’s earnings is pegged at $2.73 for 2019 and $3.22 for 2020, reflecting declines of 13.6% and 15.3% from the respective 60-day-ago numbers.
iRobot Corporation Price and Consensus
iRobot Corporation price-consensus-chart | iRobot Corporation Quote
Margin-Related Issues: iRobot engages in product marketing and product development to effectively deal with competitive pressures. However, these actions usually require a considerable amount of investments. As noted, the company's gross margin was adversely impacted by promotional and pricing activities in second-quarter 2019.
For 2019, it believes that rise in promotional and pricing activities in EMEA will have adverse impact on results. Gross margin is predicted to be 45-46% in the year, with third-quarter margin likely to be comparable to the second-quarter level and the fourth quarter’s being the lowest in the year.
Stocks to Consider
Some better-ranked stocks in the Zacks Industrial Products sector are Graham Corporation (NYSE:GHM) , DXP Enterprises, Inc. (NASDAQ:DXPE) and Dover Corporation (NYSE:DOV) . All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 60 days, earnings estimates for these stocks improved for the current year. Further, earnings surprise for the last reported quarter was 100% for Graham, 4.29% for DXP Enterprises and 0.65% for Dover.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>
iRobot Corporation (IRBT): Free Stock Analysis Report
Graham Corporation (GHM): Free Stock Analysis Report
DXP Enterprises, Inc. (DXPE): Free Stock Analysis Report
Dover Corporation (DOV): Free Stock Analysis Report
Original post
Zacks Investment Research