iRobot (NASDAQ:IRBT), a household name for its Roomba vacuum cleaners, has been on a downward trail over the past three years, resulting in a 90% drop in its stock. Consequently, the company has taken a proactive step by appointing Gary Cohen as the new CEO to lead the restructuring. This move could lead to a significant turnaround and an opportunity, as the stock has been trading at a relative discount. This could appeal to investors who are comfortable with high-risk, high-reward trades.
iRobot Restructures
iRobot, a leading global consumer robot company focusing on smart home innovations, initiated an operational restructuring plan to improve revenue and enhance its bottom-line performance. These measures include significantly reducing research and development (R&D) expenditure, streamlining global marketing activities, and optimizing their legal entity and real estate blueprint.
Throughout 2024, the firm anticipates additional restructuring costs, estimated at around $9 million. As part of its proactive measures, the company reduced its workforce by 30%, resulting in a considerable decrease in operating expenses and a one-time charge of $14 million.
Furthermore, the first quarter of 2024 saw the launch of the Roomba Combo Essential and Roomba Vac Essential robots. These are the initial products to derive from its new product development strategy with contract manufacturers, which is expected to lower the cost of goods.
iRobot’s Recent Financial Results & Outlook
The company displayed mixed results for the first quarter compared to Q1 2023. Revenue fell from $160.3 million to $150.0 million, though it slightly exceeded analyst expectations of $144.98 million. However, the company made significant progress in terms of GAAP net income per share, turning a loss of $2.95 in Q1 2023 into a gain of $0.30. The non-GAAP net loss per share also improved, with a reduction from $1.67 in Q1 2023 to $1.53. This led to better-than-expected earnings per share (EPS) of -$1.53, outperforming the analyst estimates of -$2.00.
The company also reported positive cash flow from operations of $1.4 million for the quarter. This was primarily influenced by one-time net proceeds of $75 million from a transaction termination fee paid to iRobot by Amazon.com (NASDAQ:AMZN).
The second quarter (Q2) of 2024 is anticipated to be the most challenging in terms of revenue, owing to the transition of a large order from Q2 of the previous year to Q3 of this year and continued yen weakness against the U.S. dollar. However, a mid-single-digit percentage growth in revenue is expected in the second half of 2024 compared to the same period in 2023.
What Is the Price Target for IRBT Stock?
Analysts following the company have taken a cautious stance on the stock. Based on the analysts’ recommendations and price targets assigned over the past three months, iRobot is rated a Hold. The average price target for IRBT stock is $14.00, representing an upside of 45.68% from current levels.
The stock has continued its downward trajectory into this year, losing 75% thus far. It trades at the bottom of its 52-week price range of $6.48-$51.49 and demonstrates ongoing negative price momentum, trading below its 30-day (9.88) and 50-day (10.33) moving averages.
The price slide has pushed the stock into relative value territory, with a P/S ratio of 0.3x compared to the Consumer Cyclical sector average of 1.3x and the Furnishings, Fixtures & Appliances industry average of 0.74x.
Roughly a quarter of the outstanding shares are held in short interest. This suggests that a successful restructuring could quickly catalyze shares higher based on buying pressure to close out the shorts.
Final Thoughts on IRBT
Despite the substantial decline in earnings over the past three years, iRobot’s restructuring efforts present a high-risk, high-potential reward opportunity for investors. Although the shares have been on a downward trajectory, trading at the bottom of its 52-week price range, the stock has entered relative value territory, suggesting the potential for a sharp increase in the stock’s price if the restructuring proves successful.
