iRobot (IRBT) – Part 3 - Outlook

iRobot has a number of new products scheduled both in the consumer and defense market. The big positive is that many of the defense related announcements involve partnerships with bigger defense contractors. Below is a table that summarizes the new products and associated partnerships:

Product	Market Space	Partnership	Comments
ConnectR	Consumer	None	Features Wi-Fi, a video camera, a speaker, a microphone, and Internet phone capabilities. The ConnectR is intended for calling family members or monitoring pets, with the visibility of a web cam.
PackBot with iCX Detection	Defense	iCX Technologies	The iCX technology is used to detect explosives and the on-board capabilities allow destroying the IEDs.
PackBot 501 with TASER Stun-Guns	Defense	TASER	Adds ability to control dangerous suspects while keeping personnel, the suspect and bystanders out of harm's way.
FCS SUGV	Defense	Boeing	Future Combat Systems (FCS) Small Unmanned Ground Vehicle (SUGV). A portable, reconnaissance and tactical robot that can enter and secure areas that are either inaccessible or too dangerous for soldiers.
Warrior	Defense	Technical Support Working Group (TSWG) funded	Next generation force multiplier - bomb disposal, re-supply, route clearance, perimeter petrol, and surveillance.

iRobot also has several research initiatives, of which some are bound to fetch returns in the long-run. The consumer side of the business has explosive growth potential. Good execution is chiefly dependent on building brand awareness and doing away with the perception of an early adopter type product in the market space. Partnerships in the consumer space that parallels the defense space approach should facilitate the company getting there in a higher gear.

The competitive landscape is crowded with more powerful rivals even though the company has a head start in some areas. Below is a list of their primary competitors taken from their annual report:

• Developers of robot floor care products such as AB Electrolux, Alfred Ka¨rcher GmbH & Co., Samsung Electronics Co., Ltd., LG Electronics Inc., Infinuvo/Metapo, Inc, Matsutek Enterprises Co Ltd. and Yujin Robotic Co. Ltd.;
• Developers of small unmanned ground vehicles such as Foster-Miller, Inc. —a wholly owned subsidiary of QinetiQ North America, Inc., Allen-Vanguard Corporation, and Remotec — a division of Northrop Grumman Corporation; and
• Established government contractors working on unmanned systems such as Lockheed Martin Corporation, BAE Systems, Inc. and General Dynamics Corporation.

The valuation is high on a going forward basis – the company is expected to earn 37 cents per share next year and hence is trading for a PE ratio of above 50. It is justified if the company is able to grow both revenue and profitability at an above average rate going forward. Given the potential for explosive growth in the consumer sector and the relatively low market capitalization, iRobot should be a very good fit in the small-cap aggressive growth area of a diversified portfolio.

Related Posts:

1. iRobot (IRBT) - Part 1 - Introduction.
2. iRobot (IRBT) - Part 2 - Business Issues.
3. iRobot (IRBT) - Part 3 - Outlook.