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Irobot Corp(IRBT-Q)

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iRobot Stock Got Cheaper Today. Is It a Buy?

Motley Fool - Mon Jan 29, 1:34PM CST

By now, you've probably heard the news: The European Commission (EC) wanted Amazon (NASDAQ: AMZN) to make unspecified concessions to allay its concerns that allowing the e-commerce giant to acquire iRobot(NASDAQ: IRBT) wouldn't hinder competition among manufacturers of robot vacuums. iRobot refused, making it unlikely the EC would approve Amazon taking iRobot in house. And today, Amazon made it official: It's walking away from the merger, and is in fact so uninterested in acquiring iRobot at this point that it will willingly pay a $94 million breakup fee to get out of the deal.

iRobot's stock plunged nearly 19% in early trading on the news Monday morning. As of 12:50 p.m. ET, the stock's starting to recover its losses -- but is still down 6.5%.

Should you buy iRobot?

Let me repeat that: iRobot's about to get nearly a hundred million in free cash from Amazon, and its stock just got cheaper, too. Is now the time to buy iRobot?

Well, as a matter of fact, no. Now is not the time to buy iRobot stock -- and I'll tell you why.

Two big reasons not to buy iRobot

Start with the numbers. On the one hand, iRobot is arguably the best-known name in robotics stocks. But it's also an example of why sexy concepts like robotics don't always translate into successful stocks.

iRobot shares have lost 62% of their value over the past year, and granted, a lot of that loss came because investors were worried Amazon wouldn't end up paying the agreed-on price for iRobot, or buy it at all. But iRobot stock is also down more than half from the $37 or so its stock cost before Amazon even offered to buy it back in August 2022.

That's primarily iRobot's own fault. At just $583 million booked year to date, the company's sales have declined about 30% from the nine-month period ending around the time of Amazon's buyout offer. Trailing-nine-month losses -- $240 million at last report -- are up 20% from the year-ago period as well. iRobot's not looking particularly healthy right now, and the fact that it will now need to go it alone and try to fix itself without help from Amazon and its $64 billion cash hoard (iRobot itself has less than $200 million in the bank) is going to make that a tough slog.

Add in the fact that iRobot's business seems to be going in circles since 2002, when it invented the Roomba robot vacuum, and iRobot has gone full circle from expanding its product line by offering robot mops, robot gutter cleaners, and robot pool cleaners, back to ... offering just robot vacuums and mops, and I'm not at all convinced this company knows where it's going. As a business, iRobot resembles nothing so much as a Roomba that's lost its guidance, and is just endlessly circling the same patch of floor, cleaning and recleaning the spot it started at 20 years ago.

That's not a business I want to invest in. You shouldn't, either.

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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. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and iRobot. The Motley Fool has a disclosure policy.

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