IRBT iROBOT CORPORATION
Sector financial performance:
This company, which primarily designs and builds robots for home related work, has been grouped into household robots sector in household equipment industry.
While the fast increase in sales of home robots of this company seems to have been supported by large spending in marketing and aggressive promotion, the more than 20% annual growth in sales units since 2017 cannot be explained without support of strong demand from consumers. At the same time, shifting of product mix to higher margin products may mean that consumers would like to pay more for innovation of products, which may have been proved by continuingly increasing sales volume of its new products in the 2Q of 2018.
As a result of increasing demand for higher margin products, companies’ gross margin has been improved by about 400 basis points to about 50% in the past several years. It is the first time for this company’s gross margin in the past several years to catch up the increase in its average SG&A as percentage of sales, which increased by about 400 basis points during the same period. We thus see its operating margin to go back to about 9% in 2018, a 100 basis point increase compared with 2017 thanks to fast increase in sales. We see an increase in cash flow.
The typical average enterprise price/EBI (a) ratio is: 54(interest/EBI ratio of 0%) and stock price/sales ratio is 3.1.
It seems that the demand for products of this company in the past several years has been strong ( especially for sales since 2017) as indicated by continuing, fast increase in sales volume (more than 20% annually) while the demand seems to have been supported by large input in advertising and promotions. New products launching and the favourable products mix also contribute the increase in sales.
The first six months of 2018 compared with 2017
Consumer robots sales increased by about 26% (23% for 2Q) attributable to increases of about 14% (23% for 2Q) in volume and increase of about 11% (flat for 2Q) in average selling price.
The 2017 compared with 2016
Consumer robots sales increased by about 35% attributable to increases of about 26% in volume and increase of about 11% in price.
2016 compared with 2015
Consumer robots sales increased by about 17% attributable to increases of about 21% in volume offset by decrease of about 1% in price.
Fiscal 2015 compared with 2014
Consumer robots sales increased by about 10% attributable to increases of about 12% in volume offset by decrease of about 1.5% in price.
Its gross margin has gone up from about 46% of 2014 to 50% of 2018 primarily due to favourable product mix (larger margin product) and leveraging of expenses as a result of increased sales. However, due to corresponding increase in SG&A as percentage of sales, which increased from 24% to 28%, its operating margin has thus been flat at about 9% in 2018.
This stock currently has an enterprise price/EBI ratio of 54 ($112). We think that its stock is being relatively fairly valued considering that we will probably be able to see a continuously increasing cash flow resulted from leveraging of expense as sales continue to grow.