Roku (ROKU) and Comcast Corporation (CMCSA) are two of the top publicly traded companies in the entertainment industry. However, the companies offer unique products and services with their own nuanced merits.
There is an argument to be made that both of these entertainment powerhouses belong in your portfolio. However, those who perform a deep dive into each stock are likely to favor one over the other.
Let’s take a look at whether ROKU or CMCSA is the better play.
The Case for ROKU
ROKU is at the forefront of the streaming industry. Aside from its ROKU device that facilitates streaming, the company also sells its own TVs that simplify the streaming process, especially for those who don’t have extensive tech knowledge. ROKU also has partnerships with plenty of TV-makers ranging from Sharp to JVC and TCL. Furthermore, the ROKU OS is licensed to some operators to boot.
Though the average analyst price target for ROKU is $290.50, which indicates a potential 16% downside, 12 out of 19 analysts who cover the stock recommend investors buy it. Six of the analysts advise holding. Only one recommends selling. Currently priced at $347, ROKU is only $16 or so away from its 52-week high of $363.44, yet there is no reason why the stock can’t break through this barrier and establish a new high.
The world is shifting toward streaming services while cutting the cord on cable TV, ultimately benefitting companies like ROKU. In fact, ROKU recently announced it has a record number of active accounts. Add in the fact that ROKU’s brass reported an increasing number of streaming hours per customer on its platform to end the fourth quarter of 2020, and there is even more reason to be bullish about the stock. All in all, ROKU had slightly more than 51 million active accounts at the end of the latest financial quarter. The company is enjoying year-over-year growth of 55% in the fourth quarter and for the entire year.
Even if people start spending more time outdoors in the spring when more of the population is vaccinated, ROKU will benefit from habits ingrained in its customer base throughout the pandemic, ultimately holding onto many of these customers for years or even decades. If you still aren’t convinced ROKU is a solid investment, look no further than the reacceleration of monetized advertisements on the company’s platform.
The Case for CMCSA
CMCSA is a media and tech business that makes money through NBCUniversal, Comcast Cable, and Sky. Based in Philadelphia, PA, CMCSA rakes in revenues over 100 billion per year. Slightly more than half of CMCSA revenue stems from cable communications. CMCSA provides high-speed internet, automation services, and more.
CMCSA is priced slightly above $50, a mere $2 and change away from its 52-week high of $52.49. The stock’s 52-week low is $31.71. Furthermore, CMCSA has a forward P/E ratio of 16.87, meaning it might be slightly undervalued at its current price of $50. Analysts set an average price target for the stock is $55.90, indicating a potential 11% upside. Of the 13 analysts who cover CMCSA, nine recommend buying, four recommend holding, and none recommend selling.
As the country’s largest cable and broadband company, CMCSA should be worried about streaming services’ rising popularity. Yet, the company’s main division is its high-speed broadband, a space that will likely prove to be a money-maker indefinitely. The company’s profit-rich broadband segment continued to rake in cash during the pandemic as subscriptions piled up even higher. CMCSA is clearly benefiting from the transition away from in-office work to work at home performed o the internet.
Though few know it, CMCSA’s Sky division has more than 20 million subscribers in Europe, providing satellite TV along with sports content and more. Even if cord-cutting continues to gain steam, CMCSA can still make money through its Peacock streaming service that has amassed nearly 30 million subscribers. Furthermore, CMCSA has prepared for a potential revenue dip stemming from the threat of 5G by launching a mobile service that functions on the Verizon (VZ) network.
Add in the fact that CMCSA pays a dividend of 1.84%, and you have even more reason to consider adding the stock to your portfolio.
Choosing between these two entertainment stocks is easier said than done. Both stocks have their own unique merits. Let’s take a look at the POWR Ratings to break the tie.
ROKU has “A” grades in the Industry Rank and Trade Grade components and “B” grades in the Peer Grade and Buy & Hold Grade components. ROKU is ranked 13th out of 41 stocks in the Technology – Hardware industry. Alternatively, CMCSA has “A” grades in the Buy & Hold Grade, Industry Rank, and Trade Grade components along with a “B” Peer Grade component. CMCSA is ranked first out of 14 stocks in its industry.
If you have to choose one of these stocks, roll with CMCSA as it has more of a diversified business model that generates revenue streams from multiple sources compared to the more narrowly focused ROKU.
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ROKU shares were trading at $388.64 per share on Friday afternoon, up $9.35 (+2.47%). Year-to-date, ROKU has gained 17.05%, versus a 0.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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