TAKING STOCK: Is iRobot a good buy?

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Dear Mr. Berko:

Almost a year ago, we bought our first home, which has an enclosed pool. We never expected that a pool would require so much work. After months of cleaning it, we decided to buy a pool cleaner. We bought one from our neighborhood hardware store, and it works like a charm. We're delighted with it, and it saves my wife and me from having to do a lot of work. The salesman said the company that makes it, iRobot, also makes robotic vacuum cleaners, and we will buy one of those soon. I understand that this is a public company. Would you recommend the stock?

-TT, Port Charlotte, Fla.

Dear TT:

IRobot (IRBT-$59.54) is not a high-tech robotics company involved in artificial intelligence that can be programmed to take a surgeon's place in the operating room, flip hamburgers at McDonald's, complete complex experiments in a physics lab or cook a gourmet dinner. IRBT is a conventional, mundane company making robotic products that are more prosaic and pedestrian. IRBT designs and builds robots for home and office use, and many Americans have its products in their homes. IRBT's Roomba vacuum cleaner, which accounts for about 90 percent of revenues, can be bought from Best Buy, Bed Bath & Beyond, Ace Hardware, BJ's Wholesale Club and, of course, Amazon. And soon, if not already, the Roomba will be sold at Lowe's and Home Depot.

A distant friend has two of these contraptions (one for the inside of his home and another for his pool), and the Roomba does a fine job of cleaning his carpets. Roombas (there are numerous models) are simple contraptions that are battery-powered, can run for about two hours and should last for about 400 charges. An infrared beam detects walls and obstacles, signaling the Roomba to slow down when approaching them, while a touch-sensitive bumper stops the Roomba when it hits something. And there are infrared sensors underneath the Roomba, pointing straight downward, allowing it to detect stairs. It also cleans floors just as well as an upright cannister vacuum, and my friend tells me that it does a better job with dog fur than his upright vacuum. Anybody over 21 can buy a Roomba if his or her credit card will accept a charge of between $900 and $1,400, depending on the model. The robot for my friend's pool is a four-wheel, $1,000 contraption named Mirra. It is much larger than an ordinary pool vacuum and uses a moderately enhanced technology. It deep-cleans a pool floor, removing leaves, dirt, hair and algae. Mirra produces 10 percent of IRBT's revenues.

IRBT's revenues have increased in nine of the past 10 years-more than tripling, from $249 million in 2007 to $875 million in 2017. This year, management tells us revenues should reach just over $1 billion. Earnings, which were 36 cents a share in 2007, rose in eight of those 10 years, to $1.90, with 5.4 percent net profit margins. Management advises that earnings could come in at $2.35 a share this year, a 24 percent increase, with net profit margins of 7.2 percent. In the coming three to four years, revenues could grow to $1.6 billion (a 50 percent increase), with anticipated net profit margins slightly exceeding 8 percent. That's impressive. The company has only 27 million shares outstanding, no debt, no preferred stock, no pension liability and less than $5 million in uncapitalized leases. However, even with an expected 2018 cash flow of $3.60 a share, the Scrooge-like board of directors still refuses to pay a dividend. For shame!

In the past dozen-plus years, IRBT has sold over 20 million of its vacuum units, and its products receive warm welcomes overseas. In Europe and in Japan, management decided to transition itself and began selling directly to the consumer rather than use distributors. This was a dangerous strategy, but it worked! IRBT eliminated the added costs of middlemen, and the results were impressive, as revenues in Europe rose by 46 percent and revenues in Japan rose by 28 percent.

I like this company's products and management. But I don't care to own IRBT at $59.54, which is too high for my comfort. I think $48 to $51 would be a good entry point.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

©2018 Creators.com

Published: Thu, May 03, 2018

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