IRobot (NASDAQ: IRBT) stock has deteriorated. After falling over 80% in a year, the robotic cleaning device specialist's shares plummeted below $9. Investors were upset when Amazon's takeover failed regulatory scrutiny. More unfavorable news about iRobot's short-term prospects followed.
Wall Street may have overreacted and iRobot will outperform. However, investors must weigh that potential against the likelihood that the company won't develop a sustainable business. Let's examine why the stock isn't appealing at its discount.
The iRobot forecast is bleak, with sales not yet stabilizing. Management warned in a mid-March operations report that fiscal Q2 revenue may decrease by more than 20% after falling 10% in Q1. Slow start in 2024 for the device company. Sales fell to $891 million in 2023 from $1.2 billion as consumers abandoned robotic cleaning devices.
A drop in demand and a rush of new rivals made it harder for iRobot to defend its market position. Since they have inventory overhangs like iRobot, competitors are fighting on pricing. A perfect storm of deteriorating sales and profitability for most industry players through 2024. "We are managing through a challenging period," interim CEO Glen Weinstein stated in a press release. This tough selling climate shows no sign of ending.
Financial issues The stock may be appealing if iRobot was becoming profitable through price rises, cost reduction, and layoffs. Unfortunately, not today. iRobot expects big losses in 2024 after huge losses in 2023 and 2022. Declining demand and unsustainable costs are to blame. Since 2021, gross profit margin has fallen despite growing prices.
The 50% shareholder percentage before the epidemic is unlikely to return. Management only expects a slight improvement in gross profit margin to 33% of sales in 2024 due to layoffs and a restructuring program. Shareholders should expect more from this consumer electronics maker.
Although iRobot executives expect their reorganization plan, which includes a 31% headcount reduction and withdrawal of underperforming regions, to yield results in the second half of 2024, investors should remain cautious. They expect sales to decline in the coming quarters before rebounding in 2024. As its sales fall, iRobot should continue to lose money.
Despite the significant discount on this stock, don't buy it. Yes, iRobot shares may be bought for 0.3 times sales, the lowest valuation ever. However, there is little sign of growth or earnings recovery. The corporation is spending cash today and expects more in the first half of 2024. Positive cash flow in the second half of the year would indicate progress. IRobot stock should not be considered a long-term investment until then.
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