iRobot Corporation (NASDAQ:IRBT) really does manufacture robots, but don’t picture them anything like in an Isaac Asimov book. Founded in 1990, the company makes robot vacuum cleaners, mops and pool cleaners. It has a market cap of roughly $2.5 billion, down from ~$3.8B in March.
Since the bottom of the Financial Crisis in 2009, iRobot stock has experienced four notable declines. The share price managed to fully recover from every single one of them and reach a new all-time high soon after.
IRBT was hovering in the vicinity of $133 a share four months ago, but closed below the $90 mark yesterday. Should investors expect another recovery similar to the previous four to follow soon? Let’s see if the Elliott Wave analysis below can help us find the answer.
The weekly chart of iRobot stock reveals the entire uptrend since March 2009. It can be seen as a textbook five-wave impulse, labeled (1)-(2)-(3)-(4)-(5). The five sub-waves of wave (3) and wave 3 of (3) are clearly visible as well.
If this count is correct, the top at $132.88 marks the end of the entire 10-year bull market. According to the theory, a three-wave correction of the same degree follows every impulse. That is what we believe the current selloff stands for. It seems to be part of a simple (a)-(b)-(c) zigzag correction. That is what makes it especially treacherous. In our opinion, this pullback is a lot different from the last four. Applying the buy-the-dip strategy here is likely to end in tears.
A small recovery in wave (b) can be expected once wave (a) is over, but the bears’ ultimate targets lie near the support area around $50 a share in wave (c). This time it may take many years before iRobot stock climbs to a new all-time high.