We have issued an updated research report on iRobot Corporation (IRBT - Free Report) 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). 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