An iRobot PackBot picks up a demonstration object at the Joint Robotics Repair Detachment at Victory Base Complex, Baghdad, Iraq. The robots can be operated by a commercial off-the shelf controller or a heads-up display. See more at www.army.mil (Photo credit: Wikipedia)
It is old news to many, but I was so surprised that iRobot (Nasdaq: IRBT) does far more than making a vacuum cleaning robot. I knew about the floor cleaning one and even the pool cleaning one seems normal. What I did not know was that it created products with both military and commercial uses. Drones and underwater robots are just some of the items in its bag of tricks, though in actuality there is one underwater robot not counting the pool cleaner. I was amused to learn that what I knew about the company was the tip of the iceberg. The home appliance aspect is the biggest part of the business, but I think defense will play an important part in the future.
Robots are the future, and not in a action movie kind of way. You can already see hints of it with Google’s (Nasdaq: GOOG) work involving self-driving cars. I cannot wait for those to actually be self-driving. Self-driving cars have to get to the point where you can take a nap on the way to your destination. If Google can manage that, then it will start a new era of personal transportation. I see Google jumping into the digital road concept too, but that is just something I am inferring from the foray into automated driving. It would make sense for Google to be part of the push to network roads, cars, phones, and everything else.
The share price for iRobot has had a rough year. Early on there was a big move downward, and another downward move in October. The damage is not extremely extensive since the stock has not been moving in solely one direction. The reason the stock took a tumble was the company announced that it expected an EPS loss of $0.08. However, the company surprised the market and itself by having a positive EPS of $0.02. The market did not react to this with the same intensity that it reacted to the moot news of a loss. It does create an opportunity, though the company expects a loss for Q4 because of a recent acquisition, which is fine as long as the acquisition creates more value down the line.
I decided to look at iRobot because I was interested in the military and commercial aspects. Unfortunately the company only has one underwater robot. The I have been staring at big companies too long, I forget that these smaller companies are making inroads. Even winning one $10M contract is substantial. Government contracts tend to take a while, but they tend to be large when they do come down so persistence is important.
This is all further down the line, but the company seems to be in a solid position. It amazes me that the company has no debt. I would just expect a company that makes a product like the Roomba or other robots to have more in the way of capital expenditures, or R&D spending. The company is profitable, and the news earlier in the year has created a nice opening. That is not to suggest the company is undervalued. The PE suggests to me that it is fairly valued for the gloomy times we find ourselves in. It is at 16.10 right now, but it has been higher in the past.
Social media stocks have shown me that aggressive multiples for so-called growth stocks forgets the market we are in, and the lessons of history. I do not like to think in really long-terms. I do not like to look at investments too far past 5-years. I just know that the further you try to extrapolate the more likely you are to get kicked in the teeth by unexpected events.
Going back to iRobot’s future in the defense industry. Budgetary limitations will help companies like iRobot. Drones have numerous advantages over manned vehicles. Particularly as weapons of destruction or reconnaissance. Basically, spotting stuff or blowing it up. I would not want drones in a hostage crisis, except as a last resort. Drones might not have the finesse to handle situations requiring critical thinking and minimizing collateral damage. If you use science-fiction as your guidebook for reality, then hopefully they will never have that finesse.
Lockheed Martin (NYSE: LMT) makes a lot of manned planes. Now I am not sure that the budgetary tightening will do serious harm to the company, but it is a concern. Lots of military technology will be based around drones. I am not saying that the orders will stop coming in, but they might be diminished. Lockheed is no stranger to drones, but the point is that the majority of their business seems to be more traditional. A smaller company like iRobot has something to grow into and focus on, while Lockheed might fill losses from one division with gains in another. That is why going for smaller companies, or at least the underdog is a lucrative prospect.
Drones can be smaller for the same punch. For example, they might be able to deliver the same firepower of an aircraft, but since there is no pilot a bunch of systems can be taken out and space saved. Drones can be lighter, smaller, and cheaper especially if you take out the human cost in risk and lives. Taking men out of the line of fire is the best thing, and saves both lives and money.
This is a field of expansion for iRobot, but it has substantial potential. I do not think they are making the fanciest of drones, though if you look on the website there are some interesting things. I still don’t see flying ones, but maybe one day.
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