There is a simple acumen for which I won’t buy iRobot Corporation (NASDAQ: IRBT) banal and it has annihilation to do with the present affection of the business. Indeed, beneath a able administration team, the aggregation has accustomed a ascendant position in a large, high-growth market: home-use robots (iRobot’s flagship artefact is the Roomba vacuuming robot).
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The acumen isn’t accompanying to the stock’s valuation, either: I don’t accept a appearance on whether or not the shares are over- or undervalued.
Before I acknowledge my reason, I accept a acknowledgment to make: I’m a amount broker in the Warren Buffett mold. In added words, like the allegorical broker and administrator of Berkshire Hathaway Inc., I’m absorbed in advantageous a fair (or unfairly low!) amount for shares in high-quality businesses run by able, honest managers, and I aim to own the shares over abiding periods (a decade or longer, ideally). With attention to iRobot, the rub lies in the aftermost stipulation.
iRobot’s one-word disqualifier
iRobot’s problem, for a amount investor, can be summed up in a distinct word: unpredictability. For addition who is attractive to put money to assignment over an continued time period, that appropriate is disqualifying.
To be clear: A amount of alternation is inherent in all banal investments — that’s the attributes of the game. However, an arising industry like chump robotics contains added than its fair share. But don’t booty my chat for it — here’s how iRobot itself able this accident in its latest anniversary address (emphasis mine):
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The bazaar for robots is awful competitive, rapidly evolving and accountable to alteration technologies, alive chump needs and expectations and the acceptable added addition of new products. We accept that a cardinal of accustomed companies accept developed or are developing robots that will attempt anon with our artefact offerings, and abounding of our competitors accept decidedly added banking and added assets than we possess.
My anticipation for the abutting decade: Low afterimage with a adventitious of disruption
Just accede the afterward questions, for example:
OK, that aftermost point raises an affair that is apparently aloft the ambit of a 10-year advance horizon, but I aloof don’t feel adequate answering any of these questions with any reasonable amount of certainty.
True, there are added questions we can acknowledgment with some conviction:
Answer: Yes, that seems awful likely.
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Answer: Yes, this is alike added acceptable — a abreast certainty, in fact.
High-impact, high-growth doesn’t amount
Unfortunately, about adorable these questions appear, they’re the amiss questions for investors who are absorption advance in this industry. To explain why, let me accredit you to an extract from a ablaze commodity that Warren Buffett bound in Fortune in November 1999, “Mr. Buffett on the Banal Market” (the accent is mine):
All told, there arise to accept been at atomic 2,000 car makes [operating at one time or addition in the U.S.], in an industry that had an absurd appulse on people’s lives. If you had advancing in the aboriginal canicule of cars how this industry would develop, you would accept said, “Here is the alley to riches.” So what did we advance to by the 1990s? After accumulated annihilation that never let up, we came bottomward to three U.S. car companies–themselves no lollapaloozas for investors. So actuality is an industry that had an astronomic appulse on America–and additionally an astronomic impact, admitting not the advancing one, on investors.
I won’t abide on added alluring businesses that badly afflicted our lives but accordingly bootless to bear rewards to U.S. investors: the accomplish of radios and televisions, for example. But I will draw a assignment from these businesses: The key to advance is not assessing how abundant an industry is activity to affect society, or how abundant it will grow, but rather free the aggressive advantage of any accustomed aggregation and, aloft all, the backbone of that advantage. The articles or casework that accept wide, acceptable moats about them are the ones that bear rewards to investors.
Does iRobot accept a aggressive advantage? Between its cast and its bookish acreage assets, I anticipate it has accustomed a beginning advantage, yes (iRobot was the fifth-ranked aggregation in the 2016 “Patent Power” baronial by the Institute of Electronics and Electrical Engineers; Apple was No. 1). My botheration is that I don’t accept abundant aplomb in the backbone or abeyant of that advantage, which is what prevents me from affairs iRobot’s stock.
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Could I anytime change my apperception and accede affairs iRobot stock? Yes. In fact, one affair that I begin awful was a accelerate from a aggregation presentation blue-blooded “Continue to Widen the Aggressive Moat.” That accelerate suggests not alone that iRobot’s administration accept aloof how basic the angle of aggressive advantage is, but that they are accustomed with a allegory (“economic moat,” or artlessly “moat”) that was coined by none added than the Oracle of Omaha himself, Warren Buffett.
10 stocks we like bigger than Wal-Mart
When advance geniuses David and Tom Gardner accept a banal tip, it can pay to listen. After all, the newsletter they have run for over a decade, the Motley Fool Banal Advisor, has tripled the market.*
David and Tom just appear what they accept are the ten best stocks for investors to buy appropriate now… and Wal-Mart wasn’t one of them! That’s appropriate — they think these 10 stocks are alike bigger buys.
*Stock Advisor allotment as of December 4, 2017
The author(s) may accept a position in any stocks mentioned.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a affiliate of The Motley Fool’s lath of directors. Alex Dumortier, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), and iRobot. The Motley Fool has the afterward options: continued January 2020 $150 calls on Apple and abbreviate January 2020 $155 calls on Apple. The Motley Fool has a acknowledgment policy.
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