Streaming device maker Roku (NASDAQ:ROKU) has been a publicly traded company for just over a year. During that year, there has been no shortage of drama or wild swings in Roku stock. The stock has had multiple huge rallies. It has also has had multiple huge drops. This isn’t anything unusual for a hyper-growth, freshly public company.

Whenever the numbers and surrounding environment are good, the sentiment gets really good because of Roku’s massive long term potential in the secular growth streaming market. But, whenever the numbers and surrounding environment aren’t good, the sentiment gets really bad because of the stock’s nosebleed valuation. High risk. High reward.

Ultimately, though, these big rallies and drops are nothing more than noise for true growth stocks with powerful underlying secular growth narratives. Just look at early stage Amazon (NASDAQ:AMZN) or Netflix (NASDAQ:NFLX). Back when those companies were Roku’s size, their stocks were subject to multiple huge drops. Today, those drops are hardly noticeable in a long term chart because both Amazon and Netflix have grown so much since then.

The same will ultimately be true for Roku stock. Roku is a true growth stock with a powerful underlying secular growth narrative. In late 2018, while ROKU dropped more than 50%, the market forgot that. But, it won’t forget that forever. As such, while the broader market suffers from short term memory loss, this is an opportunity for investors to pick up a growth stock at a value stock price.

Roku Is a True Growth Stock

ROKU is a pure play on the streaming mega trend. In the big picture, entertainment globally is shifting from linear consumption to internet consumption. As this shift plays out, the streaming TV world will start to look more and more like the linear TV world. That means multiple streaming services, and a centralized aggregation system to help curate and access those multiple services.

Roku is that centralized aggregation system. It is essentially the cable box for the streaming world. You can access and view any streaming service from a Roku device. Unarguably, as the global streaming market doubles over the next several, global demand for a streaming aggregation system will rise.

Right now, Roku is the leader in this market with 40% share in the streaming device market and 25% share in the smart TV market. So long as the company can defend its market leadership position, ROKU will remain a true growth stock with massive long-term potential in the burgeoning streaming market.

Roku Will Defend Its Leadership Position

The knocks against Roku are that its devices will be unnecessary in the world of smart TVs, and/or that Roku will ultimately be crushed by bigger competitors like Amazon and Apple (NASDAQ:AAPL). These arguments don’t hold water when analyzed closely.

Not everyone can afford a smart TV. In the future, once smart TV prices come way down, they will be affordable for everyone. But, we are still a long ways off from that happening.

Until then, simple and cheap streaming devices will have high demand. Also, when we do pivot to a complete smart TV world, Roku will dominate. The Roku system is already built into 25% of smart TVs, giving the platform a head-and-shoulders leader in the smart TV market.

Meanwhile, competitors don’t really measure up to Roku in the streaming market. Amazon has a streaming device. Apple and Google (NASDAQ:GOOG) have streaming devices, too. But, those streaming devices aren’t content agnostic (I can’t stream Amazon Video through a Google Chromecast).

This makes non-Roku streaming devices inconvenient for multi-SVOD subscription households, and most households fall into that category (in a decade, almost every household will fall into that category).

Perhaps this is why Roku has jumped to an early lead in the streaming device market, with 40% market share. Enhanced convenience is also why Roku will be able to defend its market leadership position into perpetuity.

The Market Forgot About Roku’s Growth

In late 2018, the market seemingly forgot about the growth narrative underlying Roku stock.

This is a hyper-growth tech company with a sub-$20 billion market cap attacking a $100 billion-plus addressable market. Revenue growth is running around the 40% range. Engagement growth metrics are running north 40%. Gross margins in the critical Platform business are north of 70%.

Other small- to mid-cap companies with similar hyper-growth and big gross margin characteristics and supported by secular mega-trends include Shopify (NYSE:SHOP), Trade Desk (NASDAQ:TTD), Chegg (NASDAQ:CHGG), and Etsy (NASDAQ:ETSY).

All those stocks trade at double-digit trailing sales multiples. Moreover, Netflix (perhaps the best comp for Roku due to its streaming overlap) trades at 10X trailing sales.

Back in September 2018, Roku had a double-digit trailing sales multiple. Today, Roku stock trades at just over 6X trailing sales.

Yet, between now and then, Roku has reported a double-beat-and-raise third quarter report and announced preliminary fourth quarter engagement numbers which easily topped estimates. In other words, Roku hasn’t lost its growth touch. The market simply forgot this was a growth stock.

Bottom Line on ROKU Stock

The market’s short term memory loss regarding Roku stock won’t last forever. Eventually, the market will realize this is a true growth stock, and that realization will send Roku stock flying. This will happen quickly (see the 25% rally in Roku stock following the strong Q4 update), so it’s best to get on the long side while the valuation still remains attractive.

As of this writing, Luke Lango was long ROKU, AMZN, NFLX, AAPL, GOOG, SHOP, TTD, and CHGG.