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IRobot shares gain 17% as market warms to ‘disruptive’ AI sector

Five to 10 per cent of the company’s revenue comes from its newer products, such as a device that allows a monitor to move around an office or plant during a video conference.


IRobot Corp., the company that brought artificial intelligence to the task of vacuuming your living room, is now cleaning up in the stock market as well.

The maker of the Roomba cleaner gained 17 per cent on Tuesday after another analyst upgraded his rating on the stock, and investors sought ways to invest in the AI sector, which has suddenly turned red hot in the wake of Google Inc.'s purchase this past weekend of robot-builder Boston Dynamics.

Some analysts speculate iRobot could be the next acquisition target, pointing to bright prospects for the company's latest Roomba, as well as its newer "remote presence" products that use robots to monitor everything from hospital patients to factories.

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"We think iRobot is one of the best investment vehicles to participate in the disruptive trend of robots taking over from manufacturing to home care," says Meghna Ladha, an analyst with Susquehanna International Group, who has had a "buy" on the stock since initiating coverage in September.

Of the eight analysts covering the stock, five call it a "buy," two say "hold" and one recommends "sell," according to S&P Capital IQ.

Raymond James analyst Brian Gesuale increased his recommendation to "strong buy" on Tuesday, citing the potential of the company's new line of Roomba 800 vacuums, which launched last month and feature improved suction and cleaning abilities. As well, he believes its line of Braava floor-cleaning robots, which the company picked up in last year's acquisition of Evolution Robotics, will do well in North America.

"We see the most significant product upgrade for Roomba in years, broader Braava distribution, improvement in Europe, and continued penetration in China as levers to carry the story," Mr. Gesuale said in a note, while increasing his price target to $39 from $31.30.

iRobot shares jumped as much as 23 per cent on Tuesday, before closing up $5.41 to $36.71 on the Nasdaq. That's still down from the stock's 52-week high of $41.12 reached in early July.

The shares had come under pressure after iRobot reported lower third-quarter earnings compared to a year earlier. In addition, the recent departure of its chief operating officer, "a respected executive," has created uncertainty, according to JPMorgan Chase & Co. analyst Paul Coster.

Still, Mr. Coster increased his iRobot recommendation to "hold" last week, when the stock was trading at around $29, saying the overall "risk-reward tilts slightly more positive" for the company.

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iRobot dominates the global market for robot vacuum cleaners. Its Roomba line represents about 80 to 85 per cent of the company's revenues, according to analysts.

Another 5 to 10 per cent comes from its newer monitoring products, such as a device, developed in partnership with Cisco, that allows a monitor to move around an office or plant during a video conference. Another product is a robot that lets remote physicians navigate their way around a hospital and interact with patients via video.

The company also makes robots for the defence and security industries. But those sales have been in decline because of cutbacks to military budgets and have fallen to around 10 per cent of the company's revenues compared to more than 40 per cent before 2011, analysts say.

iRobot was founded in 1990 by three Massachusetts Institute of Technology roboticists who developed robots for space exploration and security missions. They launched the disc-shaped Roomba in 2002, hoping to tap the consumer market.

The company went public in 2005 at an initial public offering price of $24 per share but fell below $10 during the financial crisis.

The stock has nearly doubled in the past year as analysts have raised their forecasts, particularly for the newest Roomba, which is already popular in Japan.

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However, Morningstar Inc. analyst Adam Fleck is skeptical of the recent stock surge. While iRobot's Roomba product is a market leader and the new robotic products "from a geek's perspective are really cool … from an investors' perspective it's relatively unproven right now."

He believes the stock is fairly valued at about $27. "There's a lot of optimism that's already baked into this stock."

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