Why iRobot Corporation Rose 65% in 2016

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What happened

Shares of iRobot (NASDAQ: IRBT) gained 65.1% in 2016, according to data from S&P Global Market Intelligence. The maker of robotic tools such as the Roomba automated vacuum cleaner was having a quiet year until October, where a fantastic third-quarter earnings report sent share prices skyrocketing.

So what

Earlier in the year, iRobot also sharpened its operating focus by selling the defense and security (D&S) division to a private investment firm. The $45 million deal was the endgame of a two-year exploration of "strategic alternatives" for the D&S business. The remaining home robots division accounted for 91% of iRobot's sales in 2015, was growing faster than the D&S operation, and carried higher gross margin, to boot. And then, the company got down to business.

In the third quarter of fiscal year 2016, iRobot's sales increased by 17% year over year while earnings per share jumped 67% higher.The results exceeded both Wall Street estimates and management's own guidance ranges by a wide margin.

The positive surprise rested on a strong launch of floor-mopping Braava robots in the Asia-Pacific region. In turn, some of that surge came from a Chinese distribution partner front-loading some orders that had been expected in the fourth quarter. But after backing out that artificial growth boost, the numbers still came in well above expectations.

Management underscored the soundness of iRobot's results by raising full-year estimates across the board. The revenue target increased 1.6% to $653 million at the midpoint of the guidance range, while earnings guidance stopped at roughly $1.40 per share -- a 5% boost.

Now what

The strong report was followed by a rosy investor presentation and several analyst upgrades, adding fuel to iRobot's gains. The company also bought out its Japanese distribution partner to accelerate growth in its largest international market.

Fellow Fool Rich Smith worries that iRobot's best days may be behind it. The company's biggest sellers were invented nearly a decade ago, with nothing more than tweaks and upgrades to a well-established product portfolio along the way. Moreover, iRobot has more competition than ever before, which puts even more pressure on the company to come up with something new.

There's merit to Rich's concerns, of course. Then again, you don't change a winning team.iRobot is firing on all cylinders these days, so it makes sense to take this successful trend as far as it can go. And the company's core competency happens to align with huge market trends such as the Internet of Things and home automation.

In my view, iRobot deserves the lofty gains of the last six months -- and there should be more to come in the years ahead.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends iRobot. The Motley Fool has a disclosure policy.