Major expansion plans are in the works for the streaming superstar Roku (NASDAQ:ROKU), but the high price tag of ROKU stock shares is a concern for value investors, such as myself. Hence, it’s basically a question of whether the company’s growth trajectory can justify its richly valued stock price.
I generally adhere to the principle of “buy low, sell high,” but sometimes it’s okay to “buy high, sell higher” if there’s sufficient justification for doing so. When looking at the Roku stock price, I see a textbook example of how valuation isn’t always the number-one factor: A strong vision for growth can make a company like Roku a bargain at almost any price.
Sometimes, Trees Do Grow to Heaven
I’ve been telling readers for years: Trees don’t grow to heaven, meaning that nothing can just go straight up without some retracement. We might actually have an exception to the rule with ROKU, though, as this streaming standout just keeps getting better and better.
Up 271% year-to-date, Roku stock has absolutely crushed the market in 2019 — nobody is denying that. Breaking and holding $100 has been a significant milestone for a stock that broke below $30 in December.
To be sure, the ROKU stock price probably never ought to have been that low; after all, the company finished 2018 with 45% year-over-year revenue growth along with a whopping 85% increase in advertising revenue in 2018 compared to the prior year.
One might expect Roku to take a breather, but it was full steam ahead in the first quarter of 2019 as the streaming pioneer reported 51% year-over-year revenue growth as well as a stunning 79% growth in platform revenue. It’s no wonder that analysts collectively turned bullish on ROKU stock, including boutique equity research firm CrispIdea, which promptly upgraded Roku stock from “hold” to “buy.”
ROKU Earnings Could Continue the Momentum
Given the incredible performance — of both the company and the shares — it might be hard to imagine that Roku can keep up with its high expectations when management reports second-quarter results early next month. But that’s not how the market works: “It’s a bull market until proven otherwise” is an apt adage not only for the broader stock market, but also for ROKU stock in particular.
The metric that I’ll be keeping a close eye on next month is Roku’s active account growth. Roku added 1.5 million active accounts in the first quarter of 2018, and 2 million during the first quarter of 2019. If the company can maintain anything close to that level of growth, I feel that analysts and investors will maintain their bullish stance and the ROKU stock price should easily survive through the next earnings cycle.
International Expansion Will Drive Growth
If anything can augment Roku’s active account stats, it will be the company’s foray into foreign markets — particularly Brazil, which is reportedly Roku’s next target in the coming months. While Roku currently sells its streaming devices in North America, the United Kingdom, France, Ireland, Mexico, and a number of Latin American countries, the company generated more than 90% of its revenue in the U.S. in 2018. A refocus on overseas markets like Brazil could take Roku’s active account numbers to the next level.
I think it’s a brilliant move to look abroad for opportunities to expand Roku’s already considerable market presence. A Roku spokesperson seems to agree, saying: “As a global company we are constantly assessing different countries that could offer new opportunities to fuel our growth. We see great potential in the streaming market in Brazil.”
Bottom Line on ROKU Stock
Okay, so this isn’t a cheap stock anymore and all the technical traders will claim that ROKU stock is in “overbought” territory. Still, even as a contrarian investor myself, I know from experience that rules are meant to be broken: Roku ain’t cheap, but it’s worth every penny if you ask me.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
