Don't Overlook iRobot's Competitive Advantages

In the third of four segments on global consumer robot maker iRobot (NASDAQ: IRBT), Industry Focus: Consumer Goods host Vincent Shen walks listeners through the company's competitive advantages: deep cash reserves, ample cash flow fueling R&D research, and strategic new partnerships aimed at the smart-home market. Click below to learn more about the strengths that are likely to help iRobot maintain its double-digit growth rate.

A full transcript follows the video.

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This video was recorded on Dec. 18, 2018.

Vincent Shen: Given the solid financial footing that iRobot's in, they have this pretty solid cash pile, about $135 million, no debt. That cash reserve has reduced recently, since 2017, because iRobot shelled out about $150 million to report to acquire their distribution arms for their products in Japan and Europe. I think that was the right move, given it has allowed the company to control the marketing, the messaging, better for these international markets. I think they've improved some of their volumes there, and also their selling prices there as a result of those moves.

The cash flow that this company is generating is sufficient to sustain its R&D spending. That's going to be essential for a tech-focused consumer products business like this. R&D was at $113 million in 2017, $135 million in the trailing 12-month period. It's good for about 25% of the company's gross profits.

Related to that spending, and the pretty bright long-term outlook that I think exists for this company, iRobot announced in October a deeper relationship with Alphabet. You mentioned this at the beginning of the show. Alphabet, obviously, a pretty big player at this point, in terms of their smart home technology. On the surface, there's this obvious value-add for consumers. For example, they have the ability to use Google smart home devices to give commands to iRobot products. That's something that's available both through Google and Amazon's Alexa. But as smart home solutions become more and more prevalent in homes -- I visited some friends in your neck of the woods in North Carolina a couple of weekends ago. I was pretty impressed to see that they have all their security, their HVAC system, and all these other elements in their home that they purchased recently, already integrated into a smart home apparatus. The more functionality that these smart home devices offer, they'll need more and more data and insight into the physical space. Again, iRobot is the company right now that's best-positioned to provide that kind of information, given they've sold 20 million robots around the world, they're in so many homes doing that mapping, collecting that data. So, on the horizon.

You also mentioned the hints of a robotic lawn mower that might be coming soon. There's the greater adoption of the Brava that we've talked about. I think a strong holiday season will also be in the cards for the company thanks to the new product launches.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Asit Sharma has no position in any of the stocks mentioned. Vincent Shen owns shares of GOOGL and AMZN. The Motley Fool owns shares of and recommends GOOGL, GOOG, AMZN, and iRobot. The Motley Fool has a disclosure policy.