Roku (NASDAQ:ROKU) stock started the year with a promising announcement: The company said that its popular Roku Channel will offer premium subscriptions. Keep in mind that — until now — the focus has been on ad-supported streaming, with 10,000-plus movies and TV episodes available.

However, Wall Street’s initial enthusiasm for this was temporary.  Again, the market has seen wrenching volatility, especially with tech operators. But ROKU stock has been able to recover nicely, primarily because of a positive announcement regarding various metrics for Q4.

OK then, so what about the new premium subscription service?  Well, it will have more than 25 offerings, including CBS’s (NYSE:CBS) Showtime, Lions Gate Entertainment’s (NYSE:LGF.A) Starz and MGM Holdings Inc.’s Epix (there will be a phased rollout in early 2019). So with Roku, a customer can easily browse the subscriptions and sign-up for a free trial — that is, the streaming and billing will be centralized, which will make the experience more convenient.

But the premium subscriptions should also help boost revenues (although, there has been no disclosure on what share Roku will get). After all, Roku has a large user base, which is at 27 million. In fact, more than one quarter of smart TVs sold in the U.S. are Roku TVS.

The streaming platform also has high levels of engagement. In the latest quarter, viewing hours were up 68% to 7.3 billion on a year-over-year basis.

ROKU Stock and The Secular Megatrends

When it comes to ROKU stock, it is important to note the tailwinds that should continue to drive growth. Consider the following trends:

• According to eMarketer, about 50 million of Americans will abandon cable and satellite TV by 2021, up from estimates of 20 million made in 2018.
• eMarketer also forecasts that the number of subscriptions of Over-the-Top services will go from 170.1 million in 2018 to 197.7 million in 2022.

For the most part, streaming is disrupting the traditional TV model. Customers want much more flexibility and control over their content — as well as affordable packages. And yes, this is the sweet spot of ROKU.

In light of all this, it should be little surprise that the company continues to grow at a robust pace. During the latest quarter, revenues shot up by 39% to $173 million and platform revenues were up a sizzling 74% to $100.1 million.

Bottom Line On ROKU Stock

ROKU has done a remarkable job fighting some of the world’s largest tech companies like Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL). Keep in mind that the company continues to dominate the media player market, with a 37% share.

But this business is really a way to build distribution for its streaming business, which is where the growth is. For example, about two thirds of the Ad Age 200 have advertised on the Roku platform. According to the company’s recent shareholder letter: “Advertising effectiveness and measurement tools are consistently showing the superiority of OTT video ads on Roku compared to linear TV advertising.”

Now as for ROKU stock, it is certainly much cheaper now. Since late September, the shares have lost a grueling 60%-plus, before today’s 22% pop. This puts the price-to-sales ratio at much more reasonable 6.9X.

As for Wall Street analysts, they remain bullish, with the consensus price target at roughly $60. Granted, this may be a little too optimistic. But given the strong fundamentals for ROKU and the strategic importance of streaming, it does seem like a good bet that investors could see market-beating returns in the next couple years.

Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.