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Monday, February 17, 2014 - 07:00
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Monday, February 17, 2014 - 07:00

Fresh Off A Record High, This Tech Stock Has More Upside Ahead

Monday, February 17, 2014 7:00 AM

Best known by consumers for its cleaning robots, such as the Roomba vacuum cleaner, iRobot Corp. (Nasdaq: IRBT) also manufactures robots for military and civil defense forces that perform bomb disposals and other battlefield operations.

Last week, shares shot up more than 11% on a massive spike in volume, making all-time intraday and closing highs. The reason for the rally: an honor from the Patent Board for having one of the top patent portfolios.

Out of 50 leading companies in the electronics and instruments industry, iRobot's patent portfolio was ranked fifth. It was ranked second in the "science strength" category and third in the "industry impact" category. iRobot holds more than 400 worldwide patents, 238 of which are in the United States.

Earlier this month, the company reported fourth-quarter results that beat expectations on both the top and bottom line. Revenue rose 25.4% year over year, to $126.3 million, beating analyst estimates of $125.5 million. Earnings of $0.11 per share were up from a loss of $0.21 in the fourth quarter last year and beat the consensus estimate by a penny.

In the full 2013 year, the company saw a 20% increase in sales in its home robots segment, but a 30% drop in sales in the defense and security segment.

While the stock gained more than 12% the day after the earnings report, some analysts were not swayed. J.P. Morgan Chase, for example, downgraded IRBT from "neutral" to "underweight," maintaining its $32 price target, which is more than 20% below the stock's current price.

The analysts noted that the move was a valuation call, but the technicals do not agree with this bearish outlook.

Since the 2009 lows, IRBT has developed two important higher lows (blue circles).

The first higher low took place in late 2012, along with an equally important higher low in the broader stock market. The second higher low occurred in December 2013, which ultimately allowed the stock to rally to an all-time high this week.

So, from a longer-term perspective, IRBT continues to work higher in an orderly fashion, and with this week's breakout, looks to have set in motion another leg higher.

As noted, Tuesday's rally came on a big spike in volume. This likely shook out some of the remaining bears, thus making the rally a combination of short covering and traders playing the continuation buying trade.

Through a technical lens, Tuesday's post-award rally was the result of the strong post-earnings rally on Feb. 6, which left a massive bullish outside day on the daily chart. After a couple of days of consolidation, IRBT powered higher again, pushing past its summer 2013 highs.

Momentum is clearly on the bulls' side again on both the daily and weekly charts. I would like to see a little more consolidation in the near term, but the stock looks set to continue pushing higher over the next few weeks and months.

Action to Take -->
-- Buy IRBT on a pullback to $39
-- Set stop-loss at $37
-- Set initial price target at $46 for a potential 18% gain in five to 10 weeks

This article was originally published at ProfitableTrading.com:
Analysts May Not Love This Robot Maker, but the Charts Say 'Buy'

P.S. Andy Obermueller, the Chief Investment Strategist behind Street Authority's Game-Changing Stocks advisory, has been pounding the table for months about a little-known robotics company that could revolutionize how surgery is performed -- and make its investors a fortune in the process. To learn more about this technology and four other game-changing trends, click here now.

Serge Berger does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.