The Razor's Edge

2-Year Price History

Ockham's Rating

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IRBT Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at IRBT through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 5 years are 2.99x and 1.44x respectively.

Utilizing this range we can see that IRBT’s current Price to Sales per share ratio of 0.82x is significantly below its average levels historically. In fact, with a current price of $10.44, IRBT is a full 63% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for IRBT.

IRBT Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of IRBT, Ockham views their current Cash Earnings as significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 5 years of cash earnings levels for IRBT to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 50.26 and a 23.79 low over the same period.

Now that IRBT’s current price is $10.44 and its Price to Cash Earnings ratio is 11.47, we are very positive on its outlook from the cash earnings perspective. In fact, IRBT is now trading a full 70% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why IRBT has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

IRBT Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company. As far as our investing methodology goes, it is not necessary to pay a dividend in order to get a favorable rating, so as for right now IRBT gets a neutral rating for the dividend portion of the model. The company is not currently paying a dividend nor have they in the fairly recent past.