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iRobot Is Starting To Look Good Again

iRobot (NASDAQ: IRBT) performed exactly as we expected them to, the bad news is that we were expecting supply chain issues and microchip shortages to curtail the results and they...

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This story originally appeared on MarketBeat

Supply Chain Hurdles Cut Deep Into iRobot Results

iRobot (NASDAQ: IRBT) performed exactly as we expected them to, the bad news is that we were expecting supply chain issues and microchip shortages to curtail the results and they did. The company estimates the issues cost them $35 million in unfulfilled orders, worth 770 basis points of quarterly revenue, and these issues aren't expected to subside in the first half of the year. The upshot is the guidance. The guidance is calling for headwinds to remain in the first half but for those headwinds to subside by the second half. The second half is expected to see accelerated revenue and earnings growth as component and shipping availability improve, and that is why we are getting interested again.

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"We anticipate that supply chain challenges will dampen our performance in the first two quarters, followed by much stronger revenue growth, substantial improvement in profitability and accelerated EPS expansion in the second half of the year as component availability increases and certain cost headwinds ease," says CEO Colin Angle.

iRobot Has A Rough Quarter

iRobot is not suffering from any ailment it can control other than to hunker down and operate as well as it can in the circumstances. Shortages of microchips, components that require microchips, and shipping issues both for components and finished products cut deeply into the results despite record demand. The company reported $455.4 million in revenue, down 16.4% from last year and 180 basis points short of the consensus, but it estimates revenue could have been at least $490 million or the 2nd highest quarterly revenue on record.

Moving down, the company experienced margin compression and again, above the consensus, but we think the darkest days are behind the company. The company reported a net loss for the quarter, however, with adjusted ES of -$1.05 compared to the -$0.94 expected by the analyst. Even so, the guidance for next year is favorable, in our opinion, and comes with a considerable amount of upside risk as well.

Execs are looking for 12% to 18% revenue growth with earnings growth in the range of 12% to 49% and we think both ranges could be too low. Semiconductor manufacturing is ramping at the same time the shipping companies are expanding their capacity so there is a real chance for both timing and cost to improve at a quicker pace and to better levels than the market is pricing in.

The Technical Outlook: A Bottom Is In For iRobot

This may not be the final bottom but it looks like, at least for now, a bottom has been reached in iRobot. The latest slide in share prices was driven by a 24% short-interest and it looks like short-covering has begun. The stock fell more than 15% on the miss and guidance but price action has been biased toward the upside and confirming support at a pivot-point that has been in-play since 2017 at least, and the institutions are buying as well. Institutional ownership has been net bullish for the last eight quarters and has total holdings above 93%. In our view, with the outlook now including a clearer picture of the timing of improvement, price action could easily begin moving higher from this level. It may take another quarter or two of sidewinding at this level before it happens, though, but we think it is only a matter of timing.
iRobot Is Starting To Look Good Again

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