Roku (NASDAQ:ROKU) stock nearly quadrupled in value between November of last year and the beginning of October. However, like many of peers in tech, Roku stock now finds itself in a downtrend.

The equity has lost almost 20% of its value since the beginning of the month.

Despite its lower price and improving moat, I do not think the stock has sold off enough to make it a buy. However, the future outlook continues to improve, and investors should consider buying Roku stock if they can get it at a lower price.

Roku’s and Its Moat

To be sure, I underestimated the moat of Roku in previous articles. Before, I had equated Roku with stocks like Fitbit (NYSE:FIT) or GoPro (NASDAQ:GPRO). In other words, I looked at Roku as a hardware stock that would fall toward penny-stock status as soon as one of the tech giants took an interest in competing with them.

Roku has addressed this problem adeptly by pivoting into advertising and software. Moreover, as my colleague Luke Lango points out, Roku offers neutrality among competing services.

If one wants to watch a program on Netflix (NASDAQ:NFLX), the Fire TV Stick from Amazon (NASDAQ:AMZN) will have a built-in bias for Prime programming. This may not lead to the best viewing experience for non-Prime options. The fact that Roku will treat each service the same engenders confidence in the product.

Now, this built-in bias also makes it less likely that the Justice Department would allow Amazon, Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), or Apple (NASDAQ:AAPL) to buy out the Roku stock. Hence, I now see this company as one that will likely stand on its own long term.

What to Do About Roku stock

This begs the question of whether investors need to buy Roku stock? In my view, the short answer is yes, but only if it can be purchased at a lower valuation. With the October pullback, the Roku stock price has fallen to a 20% discount from its all-time high. Despite this discount, it trades at about 10.7 times sales and 30.9 times its book value.

Analysts also believe ROKU will become profitable in 2020. As of now, consensus earnings for 2020 come in at 44 cents per share. Comparing that to today’s stock price gives Roku stock a 2020 forward price-to-earnings (PE) ratio of 140!

Regarding growth, Wall Street forecasts 95% growth for this year and 81.8% growth for 2019. Go out five years, and they project average annual profit growth of 21%. Although 21% growth remains impressive, I cannot recommend paying 140 times forward earnings for such increases.

However, streaming has not yet displaced broadcast TV, except among younger viewers. Hence, plenty of room for growth remains. Also, analysts expect the digital ads which Roku features will account for almost 50% of all ads by 2020, up from 43.5% this year. Hence, the company’s revenue stream will only improve in future years.

The Bottom Line on Roku Stock

Given the valuations and the strategic moves by Roku, investors should watch Roku stock, but not buy it. Roku has defied both the odds and the critics by creating a competitive moat where one should not exist. As such, their stock had surged until recently. However, despite the 20% decline in October, Roku stock remains overvalued.

Still, tech investors still need to watch Roku stock, especially if some of the more negative forecasts about the stock market come to pass. With its ad-sponsored free platform, a new startup will likely not find a segue into this business. Moreover, with the tech giants having or wanting a piece of the streaming business, they make themselves a less appealing choice as a streaming platform.

Streaming has become the future of television. With digital ad spending set to rise and Roku increasingly becoming the operating system of choice to manage the ads and programming, I expect the company will stream profits and gains long term.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.