Spruce Point Capital released a report today that details why iRobot, the company that makes the Roomba robotic vacuum, is a short target for them and other hedge funds.
A group of hedge funds are hoping to clean up by short-selling the company that makes the Roomba robotic vacuum.
A new report from Spruce Point Capital Management issued Tuesday questions the accounting and corporate governance practices at iRobot, the company that manufactures the Roomba, the Scooba and other robotic home cleaning products. The report also claims competition from cheaper, comparable robotic cleaners means iRobot will face mounting financial obstacles to maintaining its growth.
Roombas retail for between $400 to $600, while foreign competitors like Miele and ECOVACS, which are now selling directly to the U.S. market, are much less expensive. What's more, Roomba sales are largely correlated to the housing market, which has seen stagnated growth in recent years, said Spruce Point founding partner Ben Axler.
Spruce Point further alleges in its report that iRobot executives have benefitted from "outrageous compensation schemes" and that the company uses "aggressive accounting techniques to prevent the unraveling of its financials," in spite of the fact that "its balance sheet is showing signs that it may be stuffing the channel." Axler cites the fact that iRobot is pushing for more advertising as an indicator that sales growth has slowed.
iRobot stock is trading at around $31 per share after starting the quarter around $42 per share. Currently, its shares have a 25% short interest, meaning that a quarter of iRobot's investors are betting that its share price will fall instead of rise.
A spokesman for iRobot did not return requests for comment.
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