I’ve been digging into a couple of former high-flying development shares that are actually buying and selling very lowly. One which has fallen spectacularly from grace is US shopper robotics agency iRobot (NASDAQ: IRBT).

I point out this as a result of I thought-about it a couple of years in the past once I wished to put money into the fast-growing robotics house. Fortunately, I as a substitute went with Intuitive Surgical, the surgical robotic pioneer whose shares are up 180% in 5 years.

I say fortunately as a result of iRobot inventory has misplaced 97% of its worth since February 2021. Again then, it peaked at $133, however now trades for lower than $4 and has a market cap of simply $115m.

Right here’s what I’ve discovered from iRobot’s demise.

What on earth has occurred?

iRobot is known for its flagship product, the Roomba robotic vacuum cleaner. These little spherical machines have been fairly novel some time again. My mate’s pet used to take a experience on one because it slowly made its method round his entrance room.

The corporate additionally developed a variety of different autonomous house cleansing units, together with ground moppers just like the Braava collection. It was going to launch a robotic garden mower, however deserted the undertaking when Covid struck.

In 2021, iRobot reported income of $1.56bn and was nonetheless worthwhile. Final 12 months, that had fallen to $682m, with a internet lack of $145m. In Q1, its income slumped by 32%!

It might have been totally different although. In 2022, Amazon introduced plans to accumulate iRobot for $1.7bn. Nonetheless, the deal was later terminated as a consequence of issues raised by EU competitors authorities. Mainly, it was feared the acquisition might hinder competitors within the robotic vacuum cleaner market. 

In hindsight, this seems ironic, provided that it’s fierce competitors that has been iRobot’s undoing. Particularly, cheaper robotic vacuum merchandise from Chinese language rivals like Ecovacs Robotics and Roborock have taken over. 

In March, iRobot introduced: “Given macroeconomic and tariff-related uncertainties, there’s substantial doubt about iRobot’s skill to proceed as a going concern“. In different phrases, it might be heading the way in which of the dodo!

Alternatively, maybe the agency might be acquired at a a lot larger price, creating respectable returns for traders courageous sufficient to purchase at $3.70. I’m not that courageous. although.

The significance of moats

Billionaire investor Warren Buffett as soon as stated: “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. If you have to have a prayer session before raising the price by 10%, then you’ve got a bad business.”

The investing lesson right here is that iRobot lacked actual model and pricing energy when Chinese language competitors got here flooding in. Many customers went with the cheaper choices, shredding iRobot’s gross sales and, finally, margins.

Returning to Intuitive Surgical, the corporate can be going through rising competitors. So, that is actually price me keeping track of.

However it is a agency whose moat — a sustainable aggressive benefit — nonetheless appears extremely sturdy to me. There are actually over 10,000 of its da Vinci robots in hospitals worldwide. As soon as surgeons are skilled on them, hospitals are very reluctant to change to rival techniques.  

Sadly, Intuitive inventory may be very extremely valued immediately. It’s one I’ll look to take a position more cash in throughout a market meltdown.