Roomba Maker iRobot No Longer A Buy After 2018 Rally, Tariff Worries, Piper Jaffray Says In Downgrade

Shares of iRobot Corporation IRBT, the maker of the Roomba robot vacuum, remain well-positioned to dominate the sector, but the stock's "impressive move" higher in 2018 led Piper Jaffray to drop its bullish stance Monday. 

The Analyst

Piper Jaffray's Troy Jensen downgraded iRobot from Overweight to Neutral with an unchanged $90 price target.

The Thesis

The robotic vacuum market as a whole remains strong, and firsthand channel checks suggest demand for iRobot's devices was "solid" in the third quarter, Jensen said in the downgrade note. (See his track record here.) 

The company recently introduced new high-end vacuums, including the $950 i7+ with mapping capabilities, improved cleaning functionality and an integrated digital assistant. Demand in Europe likely notably outperformed expectations in the third quarter due to lower-priced products, the analyst said. 

Shares of iRobot are up nearly 30 percent since the start of 2018 and are now trading at nearly 2.9 times EV/sales, Jensen said. This marks a significant premium to the stock's historical average of 1.7 times EV/sales over an eight-year period and 1.9 times over a five-year period, he said.

The company's growth prospects and brand awareness are much stronger today than over the past few years, but at the same time the uptick in valuation now implies there is minimal room for incremental upside, the analyst said. 

Finally, iRobot could be impacted by tariffs since it uses Chinese manufacturers in its products, Jensen said. Given the high price tag on its products, a potential 25-percent increase in tariffs next year could mean slower growth if the cost is passed on to consumers or gross margins fall if the company absorbs some or all of the higher costs, he said. 

Price Action

Shares of iRobot were trading down 3.15 percent off the open Monday to $102.72.

Related Links:

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Photo courtesy of iRobot.