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Here's Why Investors Should Avoid IRobot (IRBT) Stock Now

By Zacks Investment ResearchAug 27, 2019 08:13AM ET
Here's Why Investors Should Avoid IRobot (IRBT) Stock Now
By Zacks Investment Research   |  Aug 27, 2019 08:13AM ET
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We have issued an updated research report on iRobot Corporation (NASDAQ:IRBT) 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 (NASDAQ:AMZN)). 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

iRobot Corporation price-consensus-chart | iRobot Corporation Quote

Margin-Related Issues: iRobot engages in product marketing and product development to effectively deal with competitive pressures. However, these actions usually require a considerable amount of investments. As noted, the company's gross margin was adversely impacted by promotional and pricing activities in second-quarter 2019.

For 2019, it believes that rise in promotional and pricing activities in EMEA will have adverse impact on results. Gross margin is predicted to be 45-46% in the year, with third-quarter margin likely to be comparable to the second-quarter level and the fourth quarter’s being the lowest in the year.

Stocks to Consider

Some better-ranked stocks in the Zacks Industrial Products sector are Graham Corporation (NYSE:GHM) , DXP Enterprises, Inc. (NASDAQ:DXPE) and Dover Corporation (NYSE:DOV) . All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for these stocks improved for the current year. Further, earnings surprise for the last reported quarter was 100% for Graham, 4.29% for DXP Enterprises and 0.65% for Dover.

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iRobot Corporation (IRBT): Free Stock Analysis Report

Graham Corporation (GHM): Free Stock Analysis Report

DXP Enterprises, Inc. (DXPE): Free Stock Analysis Report

Dover Corporation (DOV): Free Stock Analysis Report

Original post

Zacks Investment Research
Here's Why Investors Should Avoid IRobot (IRBT) Stock Now
Here's Why Investors Should Avoid IRobot (IRBT) Stock Now

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