Author Topic: IRBT: iRobot  (Read 863 times)

Wfearful_Bgreedy

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IRBT: iRobot
« on: October 29, 2019, 07:40:33 AM »
Bull Case:
Iím 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 isnít priced in is the risk of their lawn mower not being a hit. There are other companies (e.g. BHC : dermatology / eye care) that donít 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 everyoneís mind. I donít think the tariffs have at all hurt the brand name from the consumers perspective and Iím 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
« Last Edit: October 29, 2019, 08:07:40 AM by Wfearful_Bgreedy »


peridotcapital

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Re: IRBT: iRobot
« Reply #1 on: October 29, 2019, 08:42:52 AM »
I agree the stock is relatively cheap compared to its historical valuation, but on an absolute basis one could argue 11x EBITDA is roughly fair.

The big headwind that you did not address is competition. While IRBT has defended its patents successfully in the past, they will not be able to keep future competitors at bay completely. A while back there were press reports that AMZN was developing a competing product, for instance. So while the total market will likely keep growing, there are question marks as to whether they will be able to maintain their current market share.

I think the risk/reward is attractive, given their brand name and experience in the category, but it does not come without risks. On the flip side, if a bigger player wanted into the space, they could offer a big premium and $2-3B would look relatively cheap given where other tech valuations sit.

rkbabang

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Re: IRBT: iRobot
« Reply #2 on: October 29, 2019, 09:06:03 AM »
I agree the stock is relatively cheap compared to its historical valuation, but on an absolute basis one could argue 11x EBITDA is roughly fair.

The big headwind that you did not address is competition. While IRBT has defended its patents successfully in the past, they will not be able to keep future competitors at bay completely. A while back there were press reports that AMZN was developing a competing product, for instance. So while the total market will likely keep growing, there are question marks as to whether they will be able to maintain their current market share.

I think the risk/reward is attractive, given their brand name and experience in the category, but it does not come without risks. On the flip side, if a bigger player wanted into the space, they could offer a big premium and $2-3B would look relatively cheap given where other tech valuations sit.

I've owned iRobot vacuums ever since the Roomba Discovery in 2005 or something like that and our last one was a 600 series a few years ago.   They are great when they work, but I find you are always fixing them, they are always breaking.   The discovery series was awful, because you had to send it to them to repair it, but their newer models are modular and everything is replaceable.   Instead of trying yet another Roomba when our last one died for good we bought a Ecovacs DEEBOT this model here.  Not only has it worked flawlessly for over a year (something we've never had with Roomba), but it was cheaper as well.   I can't see how competition won't be a huge factor in the future of iRobot.

And that is just their home vacuum.  As far as pool vacuums there is a ton of competition.  I've had a Dolphin Diagnostics pool vacuum for a 20x40 pool  before in the past and if I ever had a house with a pool again I'd get another Dolphin without question.

Spekulatius

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Re: IRBT: iRobot
« Reply #3 on: October 29, 2019, 09:24:26 AM »
Same here - I bought a similar model than Rkabang from Evotec/Deebot when Costco had a deal on them and I am satisfied.

I donít think IRobot has much of a moat and they are now a consumer good company in a cutthroat business.
Life is too short for cheap beer and wine.

Castanza

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Re: IRBT: iRobot
« Reply #4 on: October 29, 2019, 09:31:48 AM »
I bought the two cheapest Robot Vacuums on the market ($89) each. Can't remember what brand they are, but they have been running for two years and work good on our hardwood floors and throw rugs. I agree with Spek, these can be easily knocked off at cheaper prices and do basically the same thing. If my floors need a deep cleaning I'll do it manually instead of relying on a $500+ robot with a wet swiffer on the front.

Gregmal

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Re: IRBT: iRobot
« Reply #5 on: October 29, 2019, 09:41:44 AM »
The short thesis has been around forever. And like many other "competition" and "valuation" based shorts over the past decade, its been a disaster. But will be correct in the long run.

rkbabang

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Re: IRBT: iRobot
« Reply #6 on: October 29, 2019, 09:51:38 AM »
The short thesis has been around forever. And like many other "competition" and "valuation" based shorts over the past decade, its been a disaster. But will be correct in the long run.

I wouldn't short it based on the Brand recognition alone.   I'm not thinking of buying it either though.

gfp

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Re: IRBT: iRobot
« Reply #7 on: October 29, 2019, 11:46:30 AM »
Yeah I would be worried they priced themselves way too high.  We've had 2 Roombas going for many years but I was shocked to see they want like $700 for a new one.  Thats not going to work for most people.  I got a standard poodle now, so I don't care nearly as much as I used to.