Documentation

This valuation was done on the 2021-01-09

iRobot Corporation

IRBT.NASDAQ

- USD
 Shares Outstanding
Business Description
iRobot Corporation designs, builds, and sells robots to the consumer market in the United States, Europe, the Middle East, Africa, and internationally. It offers Roomba floor vacuuming robots; Braava family of automatic floor mopping robots; Terra robotic lawn mower products; and Root robots designed to help children learn how to code. The company sells its products through distributor and retail sales channels, as well as through online stores and resellers. iRobot Corporation was founded in 1990 and is headquartered in Bedford, Massachusetts.
Competitors

iRobot's biggest risk in my opinion is it's competitors. There are already quite a few such as Shark, Ecovacs, Roborock, Neato, iLife, and eufy. As autonomous vacuum cleaners become more popular (and they will) we can expect more competitors to enter this space as well potentially causing margins to be pushed down. Dyson, Bissell, Hoover, Samsung, LG and Panasonic are the traditional heavyweights and are also entering this space. Dyson especially has a history of innovation and could be a future threat.

While iRobot has lost 2% market share since 2016 the overall market is significantly bigger, especially for the upper end product mix:

This is great news for iRobot as their products have the most added value in the upper range of this mix with features such as:

  • Auto emptying into bins

  • Smart AI pathfinding

  • Efficient charging of it's robots

  • Deep clean capability

The upper end of it's products have great reviews online. This YouTube video explains the differences between the competitors very well and rates iRobot the best in the cheapest and most expensive categories for 2020:
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Industry Averages (US)

Household Products

17.42% CAGR Past Five Years
17.43% Pre-tax Operating Margin (TTM)
28.18% ROIC (TTM)
1.71 Sales to Capital Ratio
6.61% Cost of Capital
0.94 Unlevered Beta
1.03 Levered Beta
The input values I chose for the DCF
CAGR in Years 1-5
18% - 

Considering the rapidly expanding autonomous vacuum market and now COVID-19 has accelerated this very rapidly due to more people spending time at home therefore they are spending more on household items.

The recent revenue growths of 40% in the last quarter are due to the full lockdowns people have had. I expect this to drop in the following years to 18% on average.

Operating Target Margin in Year 10
10% - 

COVID-19 has had a big impact so far this quarter on margins due to the huge demand. This will level off though.

iRobot has a loyal product base and as they have shifted more towards the high end products I expect them to acheive margins of around 10% in year 10.

Year of Convergence
3yr - 

This is because the short term spike from covid should level off and the margins should go back to normal.

Sales to Capital Ratio
2.5 - 

COVID-19 has stalled the companies plans to transition away from China to other parts of Asia, including Malaysia to 2021. This transitioning is happening due to the tarrifs between China & the U.S. This should cause a short term dip in sales to capital ratio in 2021 due to having to reinvest heavily to move it's operations out of China.

Hint: Have a play with the below inputs yourself and see how the valuation changes.

DCF Valuation

Need help? Check out the DCF docs here.

in (millions), except per share amounts

Excel

Conclusion

I have estimated the shares to have a share price of - per share.

On the 9th Jan. 2021 they traded for - a share which gives a margin of safety of .

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