iRobot Corp. shares are undervalued

No one cares about iRobot Corporation  (Public, NASDAQ:IRBT) even after they increased Q4 revenue by more than 61%. However Tuesday iRobot shareholders got a nice 6% gain and the Masters believe it's just the beginning.

In February iRobot earned $20.7 million in Q4 07 compared with a loss of $1.8 million in the year-ago quarter.  But just like every other company, iRobot shares have been tossed to the side, now just sitting at $18 a share.

Q4 2007 was great for iRobot with revenue increasing $37.6 million, or 61.5%, to $98.7 million. For the full year, iRobot earned $9.1 million, or 36 cents per share, compared with $3.6 million, or 14 cents per share, in the prior year.

iRobot's balance sheet with no debt outstanding and cash and short-term investments at December 29th were $43 million compared with $49 million at the end of the third quarter.  

But the past is the past and all we care about as investors is the guidance for 2008.  We care more about the guidance these days because Wall Street will punish the stock if it doesn't meet expectations or has any hint of bad news.

iRobot's 2008 forecast isn't horrible, the company anticipates earnings per share for 2008 to be between $0.18 and $0.23. Keep in mind that earnings per share is calculated using basic share count in loss quarters and diluted share count in profitable quarters. But stocks with high P/E's can't continue to trade at high stock values in this recession feared market place.

Thus, the fall of IRBT shares and add to it the current decline in all stocks - we sit at $18 a share.

iRobot is a long term play, just as the Fool.com pointed out earlier this month:

"The P/E is high"
GameSpot sported a high P/E ratio through most of its run. Take-Two -- a Motley Fool Rule Breakers recommendation -- has rarely traded at a market discount. The same can be said for iRobot (Nasdaq: IRBT), another pick in the growth-stock newsletter service. The military and consumer robotics specialist has a high valuation because it's not earning a lot of money in this early stage of its growth cycle. The company's Roombas are sucking up dirt in your living room. The company's PackBots are sucking up roadside explosives in Iraq. The big profits will come to those who wait.

Stay ahead of the pack, and rearview numbers can be deceiving. A stock with a high P/E is not necessarily expensive.

iRobot expects revenue to range between $109 million to $112 million in the first half of the year. Revenues in the first quarter will be up significantly from last year’s first quarter due to the strong G&I backlog coming in to the quarter.

Revenues in the second quarter will reach a low point for the year before delivery of military robots to the U.S. government and international customers accelerates in the second half of the year. As revenues increase throughout the year and Home Robot Division cost reduction programs kick in, they are projecting gross profit margin as a percent of revenues to increase as well. For the full year IRBT expect margins to fall within the range of 36% to 37%.

More than 2.5 million Home Robots have been sold worldwide and over 1,200 iRobot PackBot Tactical Mobile Robots have been deployed worldwide, mostly in Iraq and Afghanistan. These robots have performed tens of thousands of missions  and are credited with saving scores of soldiers’ lives. iRobot has won numerous awards for innovation and design, how's that for feel good investing?

Masters, we went to bat for iRobot a year ago, and now we are stepping up to the plate again.  Their technology, patents, and future growth all for a stock that trades under $20 is worth your attention.

Disclaimer: The Author has no positions in IRBT.

Article by Frank Lara Jr. Contributor at TheStockMasters.com and to the Master Picks Newsletter

Get Master Picks for only $45 a year for a 12 month subscription, and if you buy us in the next two weeks, we'll throw in the Quant Method Newsletter for free.  That's 24 newsletters you'll receive over the next year if you pony up the $45 by May 9th on WallStNewsletters.com - Click Here to Buy.