When Amazon‘s deal to acquire I robot (NASDAQ: IRBT) fell through earlier this year, it was as if the air was let out of the robot vacuum’s stock. Almost overnight, shares went over a cliff. Since then, the company has struggled to gain traction. Turnover has fallen, the company is struggling to stay out of the red and cash burn is also a concern.
After all this, iRobot shares are down 72% so far this year. However, the company recently appointed a new CEO with experience in leading turnarounds. And at a fairly significant discount, the stock may seem like a cheap buy for contrarian investors. Could the stock bounce back this year, and could now be a good time to buy iRobot stock?
iRobot gets a new CEO with “turnaround experience”
On May 7, iRobot announced that Gary Cohen would take over as the company’s new CEO, effective immediately, to help drive the turnaround. With 25 years of experience, including handling turnarounds, Cohen has experience helping multiple companies improve their revenues and profits through cost-saving initiatives, business restructurings and product innovations.
For iRobot, this is the type of leadership that could put the company on a much more positive path as its financial performance has been abysmal in recent years. Revenue of $891 million in 2023 is down 38% from 2020, when it exceeded $1.4 billion. During that time, last year’s operating income has gone from a profit of $147 million to a loss of almost $305 million.
The company faces a difficult road ahead
At a time when consumers are facing higher inflation and a recession may be on the horizon, it won’t be easy for iRobot to get back on track. The company’s expensive robots may find it difficult to do well when there is more competition in the market, and people are less likely to spend as much as in the past.
In iRobot’s most recent quarter ended March 30, the average gross sales price per robot unit was $346 – down from $402 in the same period last year. Even with a lower sales price, sales of $150 million in total were still down 6% year over year. For 2024, the company expects revenue to be between $815 million and $860 million, and expects a net loss per share of at least $2.23.
And while it generated positive cash flow from its operations of $1.4 million last quarter, that wouldn’t have been the case without the $75 million termination fee Amazon had to pay to the company due to the failed takeover attempt.
Are iRobot shares cheap enough?
Shares of iRobot trade at just 0.3 times sales and just 1.5 times book value. These are at a much lower level than what the shares have achieved on average in the past. It has fallen off its 52-week low, but is still 78% lower than its 52-week high of $51.49.
iRobot stock is trading at a discount, but determining whether it’s a good value will ultimately depend on what the company’s financials look like going forward. And with iRobot in the midst of a turnaround, it’s hard to decipher just how strong the company will ultimately be.
Should Investors Take a Bet on iRobot Stock?
iRobot has become a speculative investment and is only suitable for investors with a high risk tolerance. Sales are collapsing, the company is burning through its cash, and dilution is a real threat to investors in the coming quarters.
I would wait at least a few quarters to see how the new CEO fares and how well the turnaround goes. Unless there’s a dramatic improvement in the company’s fundamentals and a reason to be more optimistic about iRobot’s future growth, this is a stock most investors should avoid for now. While it’s possible the stock could rebound if there are signs the company is heading in the right direction, investors would be taking a big risk by buying the stock right now and assuming that will happen.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Amazon and iRobot. The Motley Fool has a disclosure policy.
Can iRobot stock recover after a 72% crash this year? was originally published by The Motley Fool
