Bull Case:
I’m really interested in IROBOT. They are the makers of the Roomba. They have a recognizable/ strong brand that allows them to price significantly higher than the competition and still maintain product dominance. Also all the China Tariffs have been fully priced in to their sales forecasts for all of 2020. They went from a high of $130 to $49 today. I just love it when all the fear has been priced into the companies shares already. They have a strong brand in a very small but growing market, even at prices of $800/unit their brand and product quality is holding a market majority. Also they are releasing an automated lawn mower which has a market cap equal to or greater than the Roomba.
In the short term:
- any good news on China tariffs would probably send it much higher, but no one can predict that
In the Long Term:
- They will shift production to countries like Malaysia, which is cost prohibitive but all competition is equally impacted as well (Neato)
Bear Case:
- If we enter a recession robotic vacuums and lawnmowers might be a luxury item
- the China tariff debacle might continue to be drawn out
- Small and expensive Robotic lawnmowers outdoors seem prone to theft, a lot rides on the success of that new product in 2020/21 (Terra)
Conclusion:
The price looks really attractive at this point and the brand name is very strong. I believe the China tariff risk is already priced in. What isn’t priced in is the risk of their lawn mower not being a hit. There are other companies (e.g. BHC : dermatology / eye care) that don’t need any small miracles to occur and just need to continue BAU and also sell essential services rather than luxury goods that are comparatively better opportunities in a recession. Robot cleaners are a small but growing market cap so I imagine the room for top line growth is very large but that is priced in to an extent.
Additional Thoughts on brand and intangibles:
Warren Buffett switched from just buying cheap stocks to buying powerful brands like Sees Candy, Heinz, etc later in his career. I think the Roomba brand has a decade of tinkerers and media exposure that is burned into everyone’s mind. I don’t think the tariffs have at all hurt the brand name from the consumers perspective and I’m honestly surprised that people would buy $800 top end roombas like they would an iphone.
iRobot Corporation (IRBT) CEO Colin Angle on Q3 2019 Results - Earnings Call Transcript $IRBT
https://seekingalpha.com/article/4298238