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Why iRobot Tumbled after Its Q2 Earnings Release

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Home robotics company iRobot (IRBT) stock felt the pinch on July 23 when it released its second-quarter earnings results after markets closed. CNBC reported that the company’s stock fell more than 13% in after-hours trading. The stock closed 3.0% lower, while the broader market S&P 500 Index closed 0.70% higher on the day. At 11:02 AM ET on July 24, iRobot stock was down 21.0%.

iRobot’s second-quarter earnings were good

The company reported solid revenue growth in the second quarter. Its revenue rose 14.9% to $260 million YoY (year-over-year) but missed analysts’ estimate of $267.94 million.

iRobot has managed to beat consensus earnings estimates in the last few quarters. Its EPS of $0.25 also surpassed analysts’ estimate of $0.03 in the second quarter. However, its earnings fell 32.4% YoY. The company launched two new products, the Roomba s9 vacuum and the Braava Jet m6 mop, in the second quarter.

Why did iRobot stock fall?

Despite the company’s strong revenue growth in the quarter, its management’s concerns about its full-year outlook dragged on its stock. Colin Angle, chair and CEO of iRobot, feels that the ongoing US-China trade war could hold the company’s US market growth back in the second half of the year. iRobot has slashed its full-year outlook, which now reflects the anticipated impact of higher tariffs on its Domestic segment’s growth.

Trade tensions escalated in May

Trade tensions escalated in May after President Donald Trump hiked tariffs on Chinese imports from 10% to 25%. China retaliated, reigniting the ugly trade war between the two countries. However, at the G20 Summit in June, both countries agreed to come back to the negotiating table. Nevertheless, many US companies expect trade tensions to take a toll on their second-quarter earnings. The market expects an earnings recession in the quarter.

Outlook for the full year

iRobot expects its full-year revenue to be in the range of $1.2 billion–$1.25 billion. Its operating income should come in the range of about $75 million–$100 million. The company expects to deliver EPS in the range of $2.40–$3.15.

Price coverage for iRobot

After iRobot’s results release, Piper Jaffray cut its target price for the stock to $75 from $96. Of the nine analysts covering iRobot stock, eight give it “hold” ratings, while one gives it a “buy.” Analysts have a 12-month average target price of $104.33 on the stock, indicating an upside potential of 44.0% from its current price. The stock is up 7.0% YTD (year-to-date).

Market performance

With the earnings season in full swing, the market seems to be stable. The SPDR Dow Jones Industrial Average ETF (DIA) tracks the Dow Industrial Average Index. DIA closed 0.63% higher on July 23. DIA has returned 17.2% YTD. The Invesco QQQ Trust, Series 1 ETF (QQQ) tracks the Nasdaq Composite Index. QQQ has gained 25.6% YTD. The ETF closed with a gain of 0.65% on July 23.

The SPDR S&P 500 ETF (SPY) tracks the S&P 500 Index. SPY closed with a gain of 0.72% on July 23. SPY has returned 20.0% YTD.

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