An 84% Discount: Why Roku Is a Growth Stock Worth Considering Right Now
Investors may soon find themselves needing to factor in the unexpected fiscal progress of Roku (ROKU). With shares of this streaming-television technology company dropping a staggering 84% since their peak in 2021, it’s a stock worth looking at, especially for those who appreciate bargain opportunities.
Since the latter part of 2022, Roku's stock has barely moved, leading many investors to hold back, waiting for more signs of recovery. However, as the saying goes, the best time to invest is when others are fearful.
This fearfulness among the crowd might be blinding them to a significant opportunity with Roku.
Understanding Roku's Business Model
The concerns surrounding Roku are not unfounded. The company has struggled with profitability and finds itself in a competitive streaming market that's challenging for any player. However, for risk-tolerant investors, the current stock price presents a compelling investment opportunity.
If you're not well-acquainted with Roku, it essentially serves as a bridge between viewers and their favorite streaming services. It is known for manufacturing devices that connect to televisions, allowing users to stream content from platforms like Netflix, Amazon Prime, and Disney+. Interestingly, over 85% of its revenue comes from advertising and partnerships with streaming services rather than device sales, which accounts for its business's heart.
Roku has claimed a substantial share of the U.S. connected-television advertising market, controlling 37%. Additionally, it leads in media-playing devices, with 43% of the market, surpassing competitors like Amazon's FireTV. While Roku has yet to fully tap into international markets, it is making strides where it does operate.
The company's revenue continues to grow, and losses are decreasing, indicating that Roku is making tangible progress.
Why the Stock Isn't Reflecting Progress
The volatility in Roku’s stock price can be traced back to the pandemic. The initial surge in 2020 saw a 540% increase in the stock as consumers turned to streaming while confined at home. However, this growth was unsustainable, and the market correction in 2022 revealed the stark reality of the company's challenges.
Since then, many investors have hesitated to buy, despite the company's continued advancement in its business model and revenue stream. Analysts predict that Roku may see a turnaround, reaching positive profits by 2026, with estimated revenues of $5.3 billion at that point.
Much of this expected revenue will come from advertising, which is expected to grow annually at 10% until 2027. Roku stands in a good position to capture this market growth, which could push it back into profitability sooner than anticipated.
Despite the promising outlook, many investors remain cautious, leading to a lack of enthusiasm for the stock. Analysts currently rate Roku mostly as a hold, with a consensus price target only slightly above its current price.
The Time to Act is Now
Choosing to invest in Roku is not without risks, and the company is not necessarily a foundational holding in every portfolio. However, the potential for higher rewards is noteworthy, especially since the current stock price does not reflect the company's underlying growth.
It's likely that the market will soon catch up to Roku's progress, and investors looking to take advantage of this opportunity would benefit from buying shares now rather than waiting and risking higher prices later on.
In conclusion, Roku represents a noteworthy investment opportunity at an attractive discount. Keeping an eye on this stock could prove beneficial as the market realigns with the company’s ongoing success.
Roku, Stocks, Investment