IRobot's Growth Engine Intact, but Shares Overpriced

The company executed a cost-cutting program in 2016, and the consumer gross margin improved by 100 basis points. We anticipate further improvement in 2017, which should lead to modest group EBIT margin expansion. The company has taken initiatives to improve international growth by acquiring its distributor in Japan and making changes to its distribution process in China. We think this will lead to better growth in 2017 for the international segment. Despite the crowded competitive landscape, we expect strong domestic growth to continue, as the market remains underpenetrated, with only 10% of households owning a vacuum robot. We are more sceptical about the company’s ability to replicate the success of the vacuum robot with its more recently launched mopping robot, Braava, but this remains a small part of the company’s volume.

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