Insights

Why iRobot Stock Plunged 20% in April

What happened
Shares of robot vacuum specialist iRobot (NASDAQ: IRBT) tumbled 20.1% in April, according to data provided by S&P Global Market Intelligence, compared to an 8.8% decline for the S&P 500. The stock has been trending lower since the start of 2021, and supply chain headwinds have been causing some serious problems in recent months.
The situation didn’t get any better in May, with iRobot reporting first-quarter sales that fell well below expectations.
Image source: iRobot.

So what
In iRobot’s fourth-quarter report in February, the company disclosed that around $35 million worth of orders went unfulfilled due to semiconductor shortages and shipping delays. Fourth-quarter revenue was down 16%, and the company posted a large net loss as gross margin plunged.
The silver lining is that iRobot didn’t have a demand problem as last year came to a close. Consumers wanted to buy the company’s robot vacuums, but component shortages led to a mismatch between supply and demand. This may not remain the case if inflation ramps up, particularly if iRobot tries to pass along higher costs to its customers.
The market was right to be pessimistic about iRobot in April, even without much news. iRobot’s first-quarter report on May 4 was a mixed bag, but a few things stood out. Revenue was down slightly overall, but sales in Europe, the Middle East, and Asia plummeted 44%. The company blamed the Russia-Ukraine war for beating down consumer confidence.
iRobot also cut its full-year guidance for revenue and earnings. The company expects supply chain issues to hurt its performance in the first half of the year, with improvements in profitability coming in the second half as those issues ease.
While sales were strong in North America and Japan, it’s not hard to imagine rising inflation, higher interest rates, and a weakening economy blunting demand. If the situation in Europe is any indication as to what will happen to demand for iRobot’s products when consumer confidence takes a dive elsewhere, investors are right to be concerned.
Now what
iRobot’s near-term outlook is clouded with uncertainty. Supply chain constraints are still causing problems; demand in Europe has been crushed; and the potential for a slump in demand in the U.S. if the economy enters a recession is very real.
In the long run, iRobot should see demand for its innovative, time-saving products expand. The company branched out into the air purifier business by acquiring Aeris Cleantec last year, and it expects to grow it into a $150 million business by the end of 2024. Air purifier revenue totaled just $3 million in the first quarter, so this growth can help mitigate weak near-term sales of iRobot’s other products.
As iRobot navigates a difficult environment, any sign that demand is sinking outside of Europe would likely send the stock even lower.
Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends iRobot. The Motley Fool has a disclosure policy. –

What happened

Shares of robot vacuum specialist iRobot (NASDAQ: IRBT) tumbled 20.1% in April, according to data provided by S&P Global Market Intelligence, compared to an 8.8% decline for the S&P 500. The stock has been trending lower since the start of 2021, and supply chain headwinds have been causing some serious problems in recent months.

The situation didn’t get any better in May, with iRobot reporting first-quarter sales that fell well below expectations.

Image source: iRobot.

So what

In iRobot’s fourth-quarter report in February, the company disclosed that around $35 million worth of orders went unfulfilled due to semiconductor shortages and shipping delays. Fourth-quarter revenue was down 16%, and the company posted a large net loss as gross margin plunged.

The silver lining is that iRobot didn’t have a demand problem as last year came to a close. Consumers wanted to buy the company’s robot vacuums, but component shortages led to a mismatch between supply and demand. This may not remain the case if inflation ramps up, particularly if iRobot tries to pass along higher costs to its customers.

The market was right to be pessimistic about iRobot in April, even without much news. iRobot’s first-quarter report on May 4 was a mixed bag, but a few things stood out. Revenue was down slightly overall, but sales in Europe, the Middle East, and Asia plummeted 44%. The company blamed the Russia-Ukraine war for beating down consumer confidence.

iRobot also cut its full-year guidance for revenue and earnings. The company expects supply chain issues to hurt its performance in the first half of the year, with improvements in profitability coming in the second half as those issues ease.

While sales were strong in North America and Japan, it’s not hard to imagine rising inflation, higher interest rates, and a weakening economy blunting demand. If the situation in Europe is any indication as to what will happen to demand for iRobot’s products when consumer confidence takes a dive elsewhere, investors are right to be concerned.

Now what

iRobot’s near-term outlook is clouded with uncertainty. Supply chain constraints are still causing problems; demand in Europe has been crushed; and the potential for a slump in demand in the U.S. if the economy enters a recession is very real.

In the long run, iRobot should see demand for its innovative, time-saving products expand. The company branched out into the air purifier business by acquiring Aeris Cleantec last year, and it expects to grow it into a $150 million business by the end of 2024. Air purifier revenue totaled just $3 million in the first quarter, so this growth can help mitigate weak near-term sales of iRobot’s other products.

As iRobot navigates a difficult environment, any sign that demand is sinking outside of Europe would likely send the stock even lower.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends iRobot. The Motley Fool has a disclosure policy.

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