Roku, Inc. (ROKU - Get Rating) works as an online TV streaming platform in several countries. The company operates in two segments – Platform and Player. It enables access to various movie and TV episodes, digital and video advertising, as well as streaming players and audio products.

Last week, ROKU’s shares jumped on the news of its partnership with retail giant Walmart Inc. (WMT) to enable TV viewers to use their remote device during a TV commercial to select a product and checkout using ROKU’s payments platform. This first pilot program that fuses entertainment with transactional commerce is reported to be underway. 

Over the past year, ROKU’s stock has declined 77.2% and 57.9% year-to-date to close its last trading session at $96.03. However, it has gained 4.6% over the past month and 16.5% over the past five days.

Here are the factors that could affect ROKU’s performance in the near term:

Bleak Financials

For the fiscal first quarter ended March 31, ROKU’s total net revenue increased 27.8% year-over-year to $733.70 million. On the other hand, income from operations declined 131% from the prior-year period to a negative $23.49 million. 

Net income and net income per share came in at a negative $26.31 million and a negative $0.19, down 134.5% and 135.2% from the same period the prior year.

Stretched Valuations

In terms of its forward EV/EBITDA, ROKU is trading at 67.31x, 716.7% higher than the industry average of 8.24. The stock’s forward Price/Sales multiple of 3.34 is 161.3% higher than the industry average of 1.28. In terms of forward Price/Book, it is trading at 4.40x, 137.3% higher than the industry average of 1.86x.

Bleak EPS Expectations

The consensus EPS estimates of a negative $0.68 and a negative $0.56 for the respective quarters ending June and September 2022 indicate a 230.8% and 216.7% year-over-year decrease. Street EPS estimate for the fiscal year 2022 of a negative $1.54 reflects a decline of 190.1% from the prior year.

POWR Ratings Reflect Bleak Prospects

ROKU’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a Growth and Value grade of D in sync with its bleak bottom-line growth in the last reported quarter and lofty valuations.

ROKU has a Sentiment grade of D, consistent with its bleak bottom-line expectations. The stock also has a D grade for Stability, justified by its five-year monthly beta of 1.93.

In the 61-stock Consumer Goods industry, it is ranked #55.

Click here for the additional POWR Ratings for ROKU (Momentum and Quality).

Bottom Line

The company has been struggling with its slowing user growth and weak bottom line, leading to a substantial decline in share price over the past months. However, ROKU’s entry into the e-commerce space boosted the stock.

Moreover, its lofty valuations are concerning. And with analysts expecting further declines in its EPS, the stock might be best avoided now.

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

While ROKU has an overall POWR Rating of D, one might consider looking at its industry peers, Mannatech, Incorporated (MTEX - Get Rating) and Ennis, Inc. (EBF - Get Rating), which have an overall A (Strong Buy) rating, and Pandora A/S (PANDY - Get Rating) and Levi Strauss & Co. (LEVI - Get Rating), which have an overall B (Buy) rating.

ROKU shares were trading at $98.60 per share on Friday afternoon, up $2.57 (+2.68%). Year-to-date, ROKU has declined -56.79%, versus a -17.70% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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