IRBT

iRobot After the Breakup -- Time to Buy the Stock?

iRobot (NASDAQ: IRBT) is back to bumping along a path all by itself. The proposed Amazon acquisition failed its regulatory review, so investors again find themselves evaluating the robotic device specialist's prospects for finding its own growth opportunities.

Those prospects don't seem great. In late February, iRobot reported significant 2023 losses and projected another difficult year ahead for sales and earnings. But with the stock currently at an all-time low valuation, is it time to consider starting a position?

Obstructions ahead

It's hard to see the failed acquisition as anything but a lucky development for Amazon. iRobot revealed that sales in the Q4 period were down 20% in the core U.S. market during the holidays and fell 14% overall. Keep in mind that Amazon's product sales were up 9% in a record holiday quarter for the e-commerce giant.

iRobot is facing big tests in a difficult industry niche and from competitive robotic-device companies. "We are managing through a challenging period," interim CEO Glen Weinstein said in a press release .

It wasn't all bad news in this report. iRobot's sales declined at a slower rate, as compared to the prior quarter, implying stabilization ahead over the next few quarters. And its newest product lineup was a hit among the popular tech review media platforms. But there's still little for investors to feel excited about in a year that saw revenue drop by 25%.

More than a demand problem

Its demand challenge is daunting enough on its own, but iRobot's rebound efforts are further complicated by its gushing red ink. Net losses expanded to $305 million in 2023, or 44% of sales, from $286 million a year earlier. Gross profit margin fell to 22% of sales, despite rising average sale prices for its vacuums and mopping devices.

Unsurprisingly, cash-flow problems are flowing directly from these profitability issues. iRobot burned through $115 million of operating cash last year and used $90 million in 2022.

That context helps explain why the management team just announced an aggressive restructuring plan that's starting with layoffs of 30% of the workforce. iRobot is cutting research and development (R&D) spending on products outside of its floorcare specialist, too.

"We are confident that the actions we are taking ... will drive improved performance going forward," Weinstein said. The company predicts that gross margin will jump in 2024 but losses will still be on the way for a third consecutive year.

The path forward

Investors should stay far away from iRobot stock, at least until this restructuring process begins yielding concrete results. That's true even though you can buy the stock today for just 0.3 times annual sales, marking the lowest valuation to date for this tech specialist.

There's too much uncertainty around the company's finances to make that discount seem attractive. Meanwhile, its increased debt burden will pressure earnings in 2024 and beyond as the company works to cut costs elsewhere and create a sustainably strong business.

Being acquired by Amazon would have helped immensely with the company's cash and growth problems. It isn't clear how iRobot can quickly return to a sustainable business model on its own.

Should you invest $1,000 in iRobot right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitri Kalogeropoulos has positions in Amazon. The Motley Fool has positions in and recommends Amazon and iRobot. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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