iRobot Makes No Sense Despite Rally in IRBT Stock

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Vacuum-cleaner company iRobot (IRBT) sold more Roombas than expected in the most recent quarter, sending IRBT stock soaring — but Wall Street still isn’t convinced iRobot is a legitimate growth stock.

irobot irbt stock earnings growth stockThe unexpectedly strong quarter led IRBT to hike its full-year forecast, something that will make any stock bounce.

IRBT said profit rose to $14.6 million, or 48 cents a share, from $7.8 million, or 26 cents a share, in last year’s third quarter. Analysts were looking for earnings to hit 33 cents a share, according to Thomson Reuters, so that’s a big beat.

Revenue rose 15% to $143.5 million, well ahead of forecasts for $134 million.

Results were driven by home robot sales, which expanded 19% year-over-year. The defense and security business, which includes bomb-disposal and reconnaissance robots, saw sales gain 6%.

The results were so much better than expected that IRBT raised its guidance. For the current quarter, IRBT sees full-year earnings at $1.20 to $1.25 a share on revenue of $555 million to $565 million. Previously, iRobot targeted earnings of $1.10 to $1.20. Wall Street’s average estimate stood at $1.14 for the full fiscal year.

The positive third-quarter surprise changed the fortunes of iRobot stock overnight. IRBT stock is now in the black year-to-date, playing a game of catch-up to the performance of the broader market. Just yesterday, IRBT stock had been down more than 10% on the year.

IRBT: A Volatile, Suspect Stock

If you’re interested in iRobot stock, you’d better be comfortable with volatility. IRBT is more than twice as volatile than the broader market, in part because iRobot stock has a market value of “only” $1.1 billion.

The strange part of iRobot stock is that it looks too cheap. Shares go for just 25 times forward earnings despite having a long-term growth forecast of 33%. That forward price-to-earnings (P/E) multiple is also far below IRBT’s own five-year average of 42.

It’s not hard to find pricey growth stocks these days. From Tesla Motors (TSLA) to Facebook (FB), the market isn’t exactly shy about slapping high P/Es on names. That’s what happens in bull markets — people are willing to pay up for growth.

That IRBT trades at a discount to its growth prospects and own averages is a red flag. The market might be saying it’s seen this sort of dashed promise too many times before. Going back almost 10 years to iRobot stock’s initial public offering, shares are flat.

If you’re looking for a hot growth stock, skip IRBT. The valuation is suspect and shares have no momentum. Most importantly, there are so many better stocks, like those mentioned above, if you want to chase risk and returns.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/irobot-irbt-stock-earnings-growth-stock/.

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