Why Roku (ROKU) shares remain a BUY, even after it's recent surge

: ROKU | Roku, Inc. -  News, Ratings, and Charts

ROKU – Reasons why Roku’s stock still has room to run.

Get Free Updates

Join thousands of investors who get the latest news, insights and top rated picks from StockNews.com!

When any stock price rises more than 150% in a year, it’s easy to wonder if it’s jumped too far, too fast. If that increase is more than 240% in less than six months, investors might understandably think the stock is no longer a buy.

That latter scenario is exactly the case for streaming pioneer Roku (NASDAQ:ROKU) this year. Along with concerns about the increase, some investors are also avoiding the stock because the company remains unprofitable and sports a price-to-sales ratio of 14 for the trailing 12-month period, significantly higher than the 8.6 average valuation of its peers in the internet services and social media industry.

Yet, even in light of its lofty valuation and massive 2019 gains, there are at least three reasons to believe Roku, Inc. - (ROKU - Get Rating) might still be a buy.

1. Surging sales

Roku has produced back-to-back quarters of stellar growth, helping put to rest fears of a slowdown that plagued the company last year. Roku, Inc. - (ROKU - Get Rating) grew revenue by 46% year over year in the fourth quarter, then followed that up by accelerating its growth to 51% in the first quarter, which is typically the company’s softest season for sales growth. Platform revenue, which makes up the bulk of Roku’s sales, is growing at an even faster clip, up 79% year over year.

Management expects the company’s heady growth to continue. It signaled its confidence by raising Roku’s full-year revenue forecast to $1.04 billion, representing growth of 40% year over year. The company regularly exceeds its own guidance, so the final results may be significantly better.

2. Soaring operational metrics

It isn’t just Roku’s revenue that’s soaring. A number of underlying operational metrics are also driving sales. Roku’s active accounts grew by 40% year over year in the first quarter, which marked the seventh consecutive quarter of account growth of at least 40%.

A growing user base and increased engagement have resulted in booming viewer metrics. Overall streaming hours grew to 8.9 billion in the first quarter, up 74% compared to the prior-year quarter. The average revenue per user is also climbing, most recently to $19.06 in Q1 (up 27% year over year).

3. An open licensing strategy

Android, a product from Alphabet‘s Google, became the world’s dominant smartphone operating system (OS) by Google licensing its technology to all comers. Roku, Inc. - (ROKU - Get Rating) has taken a page from Google’s playbook by building an OS for connected TVs from the ground up and licensing it to a growing number of manufacturers. The company reported during the first quarter that 1 in 3 smart TVs sold in the U.S. contained Roku, Inc. - (ROKU - Get Rating) technology, making it the No. 1-selling smart TV OS in the country.

Roku has only just begun to partner with international television makers, looking to duplicate the strategy that has worked so successfully in the U.S. If the company is even moderately successful in its ongoing global expansion, that could offer another boost for results.

Investor takeaway

It’s important to note that Roku, Inc. - (ROKU - Get Rating) ended 2018 on a sour note, with the stock losing more than half of its value, declining 40% for the year after gaining as much as 48% earlier in the year. At least a portion of Roku’s blistering gains in 2019 can be attributed to gaining back what it lost. With a market cap of less than $12 billion, the stock’s volatility will likely continue.

Still, a company that can produce this level of growth is certainly deserving of a higher multiple than its more slowly growing peers. If Roku, Inc. - (ROKU - Get Rating) continues to expand at this breakneck pace and you are an investor with a stomach for volatility, the current price could be a bargain.


Roku Inc. Cl A shares were trading at $103.91 per share on Thursday morning, down $0.95 (-0.91%). Year-to-date, Roku, Inc. - (ROKU - Get Rating) has gained 239.13%, versus a 16.11% rise in the benchmark S&P 500 index during the same period.


This article is brought to you courtesy of The Motley Fool .

Get Free Updates

Join thousands of investors who get the latest news, insights and top rated picks from StockNews.com!

Top Stories on StockNews.com

NYSE: BAC | Bank of America Corporation  News, Ratings, and Charts

101 Fresh Upgrades to Start the Week

Bank of America is one of 101 stocks rising up to Strong Buy status. Find out what is behind this upgrade and the other stocks on the list.
NYSE: SPY | SPDR S&P 500 News, Ratings, and Charts

2900 or 3100: Which Comes Next?

The outlook for the S&P (SPY) hinges solely on the outcome of China trade negotiations. That next move will tell us whether 2900 or 3100 is the next destination for stocks.
: ACB | Aurora Cannabis Inc. Common Shares News, Ratings, and Charts

Why did shares of Aurora Cannabis (ACB) plunge 10% this week?

Aurora Cannabis is the most popular stock among millennials on the extremely popular Robinhood trading app.
: sndl | Sundial Growers Inc. News, Ratings, and Charts

What could Sundial’s (SNDL) new expansion mean for its stock price?

This week Sundial Growers Inc. (SNDL) announced that it will be supplying cannabis to yet another Canadian province.
NYSE: WMT | Walmart Inc.  News, Ratings, and Charts

Using Options to 'Own' Stock for Zero Cost

With the Fed ready to embark on a new round of free money, here’s an options strategy that also has a ‘free’ or no money down way to be long on stocks. 

Read More Stories


More Roku, Inc. - (ROKU) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All ROKU News
Page generated in 1.2505 seconds.