Thanks to iRobot, vacuuming has never been more fun. But will investors find the stock equally enjoyable?
That's the question Jim Cramer attempted to tackle as he profiled iRobot as potential Mad Money spec stock.
is perhaps best known as the maker of Roomba, a robotic vacuum cleaner that not only cleans automatically, but also returns itself to a docking station, recharges itself and then does it all again – as often as you'd like.
iRobot Roomba 880Source: iRobot
" two months ago, the Roomba 880, which has an entirely new, 50% more efficient cleaning system and requires less maintenance," Cramer said.
That could goose sales.
However, the company isn't only tethered to the success of the Roomba – it also makes other popular robotic gadgets such as the Scooba floor scrubber, the Mirra pool cleaner and more, all of which have found a substantial fan base.
"They're expanding distribution of the Braava floor-mopping robot because it's been such a strong seller. And they released the Braava in China last quarter, and they plan to start selling it in Europe, the Middle East and Africa over the course of this year."
"With 90% of iRobot's revenues coming from these home robotics products," Cramer likes that the company is aggressively trying to dominate its retail niche.
However, specialty retail is an area of the market that's particularly unforgiving. "And iRobot is notnecessarily a revolutionary company," he added.
Therefore, a 'buy' decision must involve more than looking at the trend of robotic gadgets – it must also involve digging down into current financials and reviewing key metrics.
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And after parsing through earnings and Street analysis Jim Cramer was relatively impressed.
He found that, "iRobot may look expensive, selling for 32 times this year's earnings estimates. However, the company has over $5 per share in net cash, and when you back out the cash, the stock's really only selling for 27 times earnings, which is more reasonable," he said.
Also, the "Mad Money" host noted that iRobot has very strong intellectual property portfolio, with 402 issued patents and more pending.
But it was ultimately guidance that won Cramer's favor .
iRobot management reiterated its guidance 23 to 28% revenue growth in the fourth quarter and gave a preliminary outlook for 2014, calling for revenue growth in the mid to high teens.
"If management can deliver on those numbers, and I believe they can, then this stock is worth owning for speculation," Cramer said, "but only as a spec stock. And I'd use limit orders. With shares up more than 70% over 12 months, only buy into weakness."
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