I’ve been digging into a few former high-flying growth stocks that are now trading very lowly. One that has fallen spectacularly from grace is US consumer robotics firm iRobot (NASDAQ: IRBT).
I mention this because I considered it a few years ago when I wanted to invest in the fast-growing robotics space. Thankfully, I instead went with Intuitive Surgical, the surgical robot pioneer whose shares are up 180% in five years.
I say thankfully because iRobot stock has lost 97% of its value since February 2021. Back then, it peaked at $133, but now trades for less than $4 and has a market cap of just $115m.
Here’s what I’ve learned from iRobot’s demise.
What on earth has happened?
iRobot is famous for its flagship product, the Roomba robotic vacuum cleaner. These little round machines were quite novel a while back. My mate’s puppy used to take a ride on one as it slowly made its way around his front room.
The company also developed a range of other autonomous home cleaning devices, including floor moppers like the Braava series. It was going to launch a robotic lawn mower, but abandoned the project when Covid struck.
In 2021, iRobot reported revenue of $1.56bn and was still profitable. Last year, that had fallen to $682m, with a net loss of $145m. In Q1, its revenue slumped by 32%!
It could have been different though. In 2022, Amazon announced plans to acquire iRobot for $1.7bn. However, the deal was later terminated due to concerns raised by EU competition authorities. Basically, it was feared the acquisition could hinder competition in the robot vacuum cleaner market.
In hindsight, this appears ironic, given that it’s fierce competition that has been iRobot’s undoing. Specifically, cheaper robot vacuum products from Chinese rivals like Ecovacs Robotics and Roborock have taken over.
In March, iRobot announced: “Given macroeconomic and tariff-related uncertainties, there is substantial doubt about iRobot’s ability to continue as a going concern“. In other words, it may be heading the way of the dodo!
Alternatively, perhaps the firm will be acquired at a much higher price, creating decent returns for investors brave enough to buy at $3.70. I’m not that brave. though.
The importance of moats
Billionaire investor Warren Buffett once said: “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. If you have to have a prayer session before raising the price by 10%, then you’ve got a bad business.”
The investing lesson here is that iRobot lacked real brand and pricing power when Chinese competition came flooding in. Many consumers went with the cheaper options, shredding iRobot’s sales and, ultimately, margins.
Returning to Intuitive Surgical, the company is also facing rising competition. So, this is certainly worth me keeping an eye on.
But this is a firm whose moat — a sustainable competitive advantage — still seems incredibly strong to me. There are now over 10,000 of its da Vinci robots in hospitals worldwide. Once surgeons are trained on them, hospitals are very reluctant to switch to rival systems.
Unfortunately, Intuitive stock is very highly valued today. It’s one I will look to invest more money in during a market meltdown.
