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Is It Time to Buy iRobot Corporation Stock?

While the approximately 12% drop in iRobot's (NASDAQ: IRBT) stock on Wednesday, following the company's earnings release, might not imply that the consumer cleaning robot company had a good quarter, a close look at the numbers from the quarterly update suggests otherwise.

Here's a look at three key takeaways from iRobot's third-quarter earnings report, and why investors may want to consider buying iRobot after this sell-off.

iRobot Roomba 980. Image source: iRobot

1. Strong revenue growth persists

iRobot's revenue continued to rise rapidly during the quarter, increasing 22% year over year. That's about in line with iRobot's 23% year-over-year revenue growth in its second quarter.

This growth was helped by strong consumer revenue growth in the U.S.; Europe, the Middle East, and Africa (EMEA); and Japan. Consumer revenue in these markets increased 34%, 31%, and 65% year over year, respectively.

2. iRobot just gave its full-year guidance a significant boost

iRobot raised its guidance on several key metrics.

First, if you had any concern about iRobot's continued growth potential, the company's guidance for 40% and 45% year-over-year full-year 2017 revenue growth in its U.S. and EMEA markets, respectively, should temper worries. This outlook is up from previous forecasts for 30% and "high-teens percent" growth in the U.S. and EMEA, respectively. Management said this improved outlook is based on continued momentum in the U.S. and accelerating growth in EMEA.

Second, iRobot also raised its guidance for overall revenue for 2017. Management says it now expects full-year revenue to be between $870 million and $880 million, up from a previously forecast range of $840 million and $860 million.

Highlighting iRobot's persistent momentum recently, the company also raised its guidance for full-year total revenue in its second quarter, boosting its forecast from a range of $780 million to $790 million to a range of $815 million to $825 million when excluding the impact of its Robopolis acquisition. Including the impact of its Robopolis acquisition, iRobot had increased its guidance for full-year revenue to the $840 million to $860 million range it was forecasting before iRobot revised its guidance in its Q3 report.

Third, iRobot also significantly increased its outlook for full-year earnings per share. The company said it now expects full-year EPS to be between $1.65 to $2.00, up from a previous forecast for EPS between $1.35 and $1.70.

3. Market penetration is still low

Management was careful to remind investors in its third-quarter update that low market penetration means iRobot's market opportunity is enormous, even as competition increases.

iRobot CEO Colin Angle explained:

U.S. household penetration of robotic vacuum cleaners is still less than 10%, so there is plenty of runway domestically and even more overseas. With the leading global segment share, at a time when adoption is accelerating, we are in an excellent position to capitalize on the momentum to drive future growth.

A buying opportunity

With these key takeaways from iRobot's third-quarter results in mind, the stock's sell-off on Wednesday may have little merit. Indeed, this could be a buying opportunity for long-term investors.

The stock's decline on Wednesday follows a lowered price target for iRobot, from $92 to $69, by Piper Jaffray analyst Troy Jensen, according to The Fly's breaking-news stream. Jensen is reportedly concerned with "inflecting" competition in the space. While Jensen has a point, the stock's pullback recently is making the stock look more attractive -- not less attractive. Shares have fallen nearly 40% since August 1.

Of course, it's worth noting that even after this pullback, the stock is up 50% year to date, and iRobot's premium price-to-earnings ratio of 33 suggests investors have already priced in plenty of growth. So the stock may have been getting ahead of itself. But with this solid third quarter behind it and a big pullback in iRobot's share price now in the rearview mirror, the Roomba maker's stock is enticing again.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends iRobot. The Motley Fool has a disclosure policy.