Roku, Inc. (ROKU - Get Rating) operates a TV streaming platform. The company functions through two operational segments: Platform and Player. The stock has declined 64% year-to-date and 79.6% over the past year to close its last trading session at $82.26.

Rising concerns over declining discretionary consumer spending amid multi-decade high inflation and increasing competition have weighed on ROKU. Lower demand from consumers and advertisers significantly affected the company’s financials this year.

The company stated that a significant slowdown in TV advertising spending in the second quarter due to the macroeconomic environment pressured its platform revenue growth. Consumers tightened their discretionary spending, and advertisers significantly cut down spending in the ad scatter market.

Here is what could shape ROKU’s performance in the near term.

Weak Financials

ROKU’s total revenues increased 18.5% year-over-year to $764.41 million during the second quarter ending June 30, 2022. However, Its loss from operations amounted to $110.51 million compared to an income from operations of $69.08 million a year ago.

The company’s net loss stood at $112.32 million compared to a net income of $73.47 million in the prior-year quarter. The company’s loss per share amounted to $0.82 compared to an EPS of $0.52 a year ago.

Premium Valuation

The company’s 3.21x forward EV/Sales is 55.5% higher than the 2.07x industry average. In addition, its 3.64x forward Price/Sales is 163.2% higher than the 1.38x industry average.

Lower-than-industry Profitability

ROKU’s trailing-12-month gross profit margin of 48.09% is 5.6% lower than the industry average of 50.93%. In addition, its trailing-12-month negative net income margin of 1.51% compares to the 4.61% industry average. Also, its trailing-12-month ROE, ROC, and ROA are negative 1.72%, 0.72%, and 1.07% compared to the positive industry averages.

POWR Ratings Reflect Bleak Prospects

ROKU has an overall F grade, equating to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ROKU has an F grade for Stability and a D for Value. Its Stability grade is in sync with 1.71 beta. In addition, its Value grade is consistent with its higher-than-industry valuation.

Among the 59 stocks in the C-rated Consumer Goods industry, ROKU is ranked #55.

Beyond what I stated above, we have graded ROKU for Sentiment, Growth, Momentum, and Quality. Get all ROKU ratings here.

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages of $87.04 and $151.54, respectively, indicating a downtrend. ROKU has declined 70.5% over the past nine months and 48.2% over the past six months.

Also, lower demand from consumers and advertisers due to high inflation could keep ROKU under pressure. Therefore, the stock is best avoided now.

How Does Roku, Inc. (ROKU) Stack Up Against its Peers?

ROKU has an overall POWR Rating of F, equating to Strong Sell. Check out these other stocks within the Consumer Goods industry with A (Strong Buy) ratings: Mannatech, Incorporated (MTEX - Get Rating)and Ennis, Inc. (EBF - Get Rating), and Société BIC SA (BICEY - Get Rating) with a B (Buy) rating.

ROKU shares were trading at $83.60 per share on Monday afternoon, up $1.34 (+1.63%). Year-to-date, ROKU has declined -63.37%, versus a -12.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...

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