The markets are concerned that after two years of rapid growth, demand for robot vacuum cleaners is slowing. The share prices of the leaders in China - Ecovacs and Roborock - have more than halved from their peaks in mid-2021. They are also battling rising material and shipping costs and the overhang from potential major shareholder sales. Our view is very different. We believe the correction is overdone. In this report, we challenge the prevailing narrative and detail why now could be a good time to build up positions in robot vacuum cleaner makers.

In a nutshell, we see four reasons to be optimistic: (i) domestic sales are set to pick up gradually driven by the introduction of a new generation of products; (ii) increasing penetration of Chinese products in the overseas markets; (iii) marginal improvement in cost pressures within the next 12 months; and (iv) Roborock and Ecovacs are trading at 19x and 23x 12-month forward PEs, respectively, lower than their historical average levels.