It’s been a bumpy year for streaming platform and hardware maker Roku (NASDAQ:ROKU), but it appears that things are looking up for the firm. Over the past month it was up as much as 20% before shares fell this morning.

This year ROKU made a real push towards building out its streaming platform and shifting its focus away from hardware and that change has been paying off. Although investors were initially skeptical, the firm’s most recent quarterly results showed that the streaming platform has been a smart bet.

However, now that the firm’s share price is trading within touching distance of $50 per share, investors are wondering whether or not ROKU stock has enough momentum to keep moving higher.

Streaming Platform Success

Roku has been an appealing alternative for people who are cutting out traditional cable and opting instead for streaming services. The firm’s May earnings results showed that active streaming accounts rose 47% over the past year and streaming hours were up 56% during the quarter. That growing user base helped the firm more than double the revenue that the streaming platform brought in — a 106% gain overall. 

The self-titled platform’s growth, coupled with high margins, has been a boon to ROKU’s business. And if the firm is able to continue posting such impressive figures, there’s no reason to believe that the stock can’t continue higher.

ROKU is also gaining market share when it comes to smart TV’s. Its streaming platform comes standard on 1 in 4 smart TVs sold in the U.S., and the firm has been able to align itself with all of the major streaming services — making it a good intermediary for those who want to cut out traditional cable and put that money toward a few streaming subscriptions instead. 

Advertising Success

Part of the reason that ROKU has been so successful with its streaming platform is that the company has come up with an impressive advertising strategy that keeps both viewers and advertisers happy. So far, the company has been very selective about the number and type of advertisements that its subscribers see and that has translated into more effective advertising. Conversion rates for ROKU ads are much higher than they are for traditional TV ads, making the platform a valuable investment for most advertisers. 

That has helped the firm up its average revenue per user over the past year by 50% to $15.07. The good thing here is that not only has ROKU been able to grow that figure, but there’s still a ton of room for it to continue rising.

What’s Not to Love?

So, while all of that looks great on paper, it’s important to consider some of the potential obstacles ROKU will face as it continues expanding its streaming platform. 

The biggest threat to Roku’s continued success is competition. While its operating system has proven to be popular among cord cutters, there’s really nothing keeping others from making their own similar platforms. If Roku continues to thrive, I’d expect to see smart TV makers like Samsung start to roll out their own operating systems which could potentially push ROKU out of the running. Not only do companies like Samsung have the ability to easily mimic Roku’s platform, but they have the cash to do so as well. 

Not to mention heavy hitters like Amazon.com (NASDAQ:AMZN), Alphabet (NASDAQ: GOOGL) and Apple (NASDAQ:AAPL), who are all developing their own immersive ecosystems complete with voice-controlled assistants. Not only are they far more financially powerful than ROKU, but they offer users a much more compelling value proposition that includes more than just streaming. 

The Bottom Line

ROKU stock is having a moment in the sun right now, but investors should be cautious as the company approaches all-time highs.

Not only does the firm have a lot of competition breathing down its neck, it’s also relatively expensive when you look at its long-term prospects. ROKU’s price to sales ratio comes in at 8.27% compared to the S&P 500 average of just 2.21%.

I wouldn’t expect to see the stock make its way much higher than $55 per share over the next year- and even that is a bit of a stretch. Once the share price reaches above $50 taking profits might not be a bad call.

As of this writing, Laura Hoy was long AAPL and AMZN. 

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