Shares of iRobot (IRBT) have been under heavy selling pressure, plunging more than 60% since April and the robot vacuum maker now trades at about of third of its 52-week high of $132.88. The company is set to report third quarter earnings Tuesday and investors are hoping the tide will turn.
IRBT stock fell some 15% after its second quarter earnings, during which the company lowered full-year forecasts due to the ongoing trade war between the U.S. and China. What’s more, the company has begun to face increased competition in the home robot space from the likes of SharkNinja, which is gaining market share by lowering product prices. That said, the company has delivered impressive quarterly results.
Looking at its previous four quarters, iRobot has surpassed analyst estimates each time. During that span, the company has exceeded consensus earnings estimates by some 250%, including crushing Q2 forecasts by 22 cents. Although the stock, which trades at 52-week lows, has not reflected the company’s actual results on Tuesday, iRobot management can reverse downbeat sentiment to the extent it can issue confident guidance, along with a beat on both the top and bottom lines.
In the three months that ended September, iRobot is expected to report earnings of 52 cents per share on revenue of $259.38 million. This compares to the year-ago quarter when the company reported earnings of $1.12 per share on revenue of $264.53 million. For the full year, ending in December, earnings are projected to decline 16% year over year to $2.58 per share, while full-year revenue of $1.2 billion would rise 9.9% year over year.
Investors view tariffs as one of the biggest threats to the company’s growth. Some of the major retailers of iRobot, including Amazon (AMZN), would be subjected to the tariff rate of 25% on products imported from China. Although the company beat analysts’ earnings estimates, it missed the revenue estimates in the June quarter and guided for revenue to be lower, citing tariff impact on its profit margins.
iRobot now expects full-year 2019 revenue of between $1.2 billion and $1.25 billion, full-year 2019 profit of between $75 million and $100 million, and full-year per-share earnings of between $2.40 and $3.15 — each were moderately lower than prior guidance. But not everyone is panicking. Citing valuation multiple, Bank of America Merrill Lynch analysts last moth initiated coverage on the stock with a Buy rating and a one-year price target of $70.
The massive punishment in iRobot’s stock significantly lowers its forward PE ratio to around 18, which is inline with the S&P 500 index. While consensus calls for a 14% drop in earnings in 2019, profits are expected to rise more than 16% in 2020 and at an annual rate of 18% over the next five years. In other words, iRobot stock could be undervalued and ready to bounce higher. But the company on Tuesday must do its part to showcase that relative value.
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