Roku Stock May Stream Difficulties Despite Massive Growth

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Roku (NASDAQ:ROKU) continues to grow with the streaming industry it helped Netflix (NASDAQ:NFLX) pioneer, helping to take Roku stock close to record levels in recent weeks..

The Long Overdue Pullback In Roku Stock Is Here, But It Won't Stay For Long

Source: Roku

Roku’s boxes have become a critical component of bringing streamed media to televisions. Moreover, the company’s ad-based platform has created an ecosystem that the largest companies in tech have not matched.

However, Roku stock has stagnated since the second week of March. Although prospects for Roku Inc. continue to improve, Roku stock could continue to struggle to move higher in the near-term.

Roku Continues to Stream Growth

From a business perspective, the long-term future appears bright for Roku stock and the company as a whole. Surveys indicate that Roku has become the dominant streaming player. That’s not surprising,  since ROKU pioneered this industry.

Also, unlike Amazon’s (NASDAQ:AMZN) Fire TV or Apple’s (NASDAQ:AAPL) new Apple TV+, Roku is not biased toward one service. Roku’s status as a neutral platform helped to make the company  the biggest beneficiary as consumption of streamed content more than doubled in 2018.

Moreover, ROKU continues to derive more of its revenue from ads, using hardware to keep customers in the Roku ecosystem. The company can more easily sustain a competitive moat and long-term growth by relying on an ad-dependent revenue model rather than just hardware. Such ad-based revenue models have bolstered both Roku and that of many other tech companies.

Many Remain Bullish on Roku

However, despite the company’s bright long-term prospects, investors trying to profit from Roku stock could face challenges . At the beginning of the year, I warned investors to wait for the charts to show that the selloff of Roku Inc stock had indeed ended before buying ROKU.

At that time, ROKU traded in the $30 per share range. A few days later, the Consumer Electronics Show took place, and that helped to inspire a wave of buying, causing the stock price to more than double. ROKU  Inc stock would reach as high as $74.35 per share on Mar. 11 before pulling back.

As Roku Inc  stock has risen, more analysts have turned bullish on Roku stock. InvestorPlace’s  Bret Kenwell sees ROKU as an M&A candidate. He also has the intriguing idea that Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) should acquire the company. He cites Alphabet’s cash reserves and the synergies with Google’s ad business as two of the reasons for his belief.

InvestorPlace contributor Luke Lango points to what he sees as the improving technicals and reasonable valuation of ROKU. His 2019 price target  for Roku Inc stock is around $75 per share. When looking at the long-term picture, I agree with my colleagues that Roku Inc stock will move higher. However, Roku’s short-term prospects do not look as bright.

ROKU Likely Faces a  Double Top

Roku trades around $61 per share today. Back in October, Roku stock topped out in the mid-$70s per share range before beginning its plunge over the next three months. With the retreat from the same levels in March, it appears we may have witnessed a double top.

Moreover, the fundamentals look less favorable to buyers than they did at the beginning of the year. Roku Inc stock traded at about five times its sales in early January. ROKU’s trailing-price-sales ratio today stands at about nine.

I would not necessarily assume that ROKU will fall back to its December lows. Still, ROKU will probably need a catalyst of some kind to move beyond its current price-sales ratio. Unfortunately for ROKU bulls, the announcement of Roku’s partnership with Apple (NASDAQ:AAPL) only stemmed the downward trend temporarily. If such news cannot propel ROKU higher, I do not know what will in the near-term.

The Bottom Line on Roku Stock

Unlike the company, Roku stock could struggle to grow in the near-term. The triple-digit growth rate of streamed-content consumption benefits ROKU as a company. However, Roku stock appears to have hit a double top. Now trading at nine times sales, it seems to lack the catalyst needed to rise above the mid-$70s per share level.

Much like I stated in January, investors should wait for another sustained rally before buying Roku Inc stock. Unfortunately for ROKU bulls, prospective buyers will probably have to wait more than a few days to see that rally this time.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2019/04/roku-stock-streaming-difficulties/.

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