iRobot Inc
Weekly Valuation  – Valutico | 16 August 2022

Link to the detailed valuation: here

iRobot is a US company listed on the NASDAQ that manufactures robots. iRobot’s best-known service robots are the Roomba hoover robot and the Scooba (now Braava) floor cleaning robot. The company also originally made robots for military use.

Last week Amazon announced that it wants to buy the company for $60/share, a ~22% premium to its share price at the time. The intention is to integrate it into its own ecosystem which would, presumably, result in significant cost savings in addition to expanding Amazon’s ever-growing smart home capabilities. 

Amazon’s offer is at a current EV/Sales ratio of 0.9x, seemingly very cheap compared to other large home automation players such as ADT Inc. (2.7x), Synaptics Incorporated (3.4x), Apple Inc. (6.6x) and even Amazon itself at 2.8x. It is important to note that iRobot is currently loss-making but expected to return to profitability in 2023. 

It actually sounds rather simple, but it is very obvious. Amazon could very easily integrate iRobot into its own ecosystem. This means that in the future, we as consumers could be increasingly dependent on the software, but also on the hardware solutions offered by Amazon. 

Amazon should have the potential to substantially boost iRobot’s sales, drastically reduce costs and exploit obvious synergies as it builds out the home automation ecosystem. 

Valutico analysis

Based on analyst forecasts of iRobot as a standalone entity, it seems somewhat overvalued. . While the current market capitalisation was USD 1.42 bn before the Amazon announcement, we arrive at a Flow-to-Equity valuation  of USD 743 m using a Cost of Equity of 9.4%. The trading comparables approach confirms this view with the median EV/EBITDA, EV/EBIT and P/E multiples applied to the 2023 forecasts producing a valuation range of USD 600 million to USD 1.1 billion. 

As alluded to earlier, applying the median EV/Sales figure to iRobot’s current earnings, results in a valuation of USD 4.4 billion. Typically we would exclude this result as an outlier, but could this be the value that Amazon sees in the company and its fundamental fair value? Going by Amazon’s track record and general domination of any market it enters, it could very well be.

Result: Overvalued for everyone except Amazon but likely Undervalued for Amazon

Link to the detailed valuation: here