For most of 2019, Roku Inc (NASDAQ:ROKU) could do nothing wrong. In fact, over the last year, the ROKU stock price ran from $29.87 to a high of $176.55. All as the company turns into the cable box of streaming television, opening a sizable amount of investment opportunity.
Not only are consumers moving toward streaming TV services, media companies are just beginning to follow them, launching their own streaming services. Connecting those media companies to consumers is ROKU – the very glue of streaming TV.
However, as we all know, not even the best stocks can run higher forever.
Since hitting $176.55 in September, bears sent the stock to an unsustainable low of $98.69 after Comcast (NASDAQ:CMCSA) announced it was making its streaming TV box Xfinity Flex free for internet-only consumers. With Xfinity Flex free, there were fears Comcast could prevent customers from using third-party streaming devices.
The Pullback Was Nothing More than an Overreaction
The “Comcast-effect” here will likely be small.
By far, ROKU is the most popular streaming TV platform in the U.S. with more than 41 million devices and 36% market share over the next streaming platform.
The best part – consumers are clamoring for even more streaming TV.
According to market research firm Colling Media, migration away from cable is picking up steam. Nearly 20% of surveyed respondents canceled their cable television subscriptions over the last two months. Better, there has been a corresponding move to streaming services, with 39% of consumers subscribing to a streaming service in the last two months.
“People are choosing streaming entertainment services for the same reason they swapped out home phones for cell phones. Mobile, on-demand, and customized choices triumph every time,” according Colling Media CEO Brian Colling.
Ignoring ROKU Now Could Prove to Be a Big Mistake Later
Earlier this week, Roku stock got another massive boost from Apple (NASDAQ:AAPL).
On Nov. 1, 2019, Apple’s streaming video service Apple TV+ will be available for Roku users. It’s “a valuable partner for content providers looking to reach a large and engaged audience, and we’re looking forward to bringing this new option to Roku users,” said Scott Rosenberg, ROKU’s senior vice president.
More importantly, there are other reasons to own shares now.
Macquarie analyst Tim Nollen upgraded ROKU stock from “neutral” to “outperform” and raised his price target to $130 a share.
“Roku has built a leading position in the U.S., and we believe its devices will find a ready market abroad,” said the analyst. Nollen was referencing the popularity of streaming in the U.S. shifting over internationally in the coming years.
He also believes the streaming company can reach 72 million active accounts in the next three years, as compared to the 30.5 million users at the close of the second quarter. In addition, the analyst sees plenty of room for growth in the global community, especially after launching a new partnership in Europe to develop and sell Roku-branded TVs.
The Bottom Line on Roku Stock
Roku stock is a long-term winner that hit a temporary rough patch. I don’t believe it’s anything to be concerned with. Instead, we should focus on the long-term growth story here.
For one, it appears investors once again overreacted to Comcast’s news. Two, with sizable growth prospects and plenty of bullish analysts, it’s tough to argue for further downside. With patience, I expect ROKU stock to resume its powerful uptrend, especially as consumers clamor for even more streaming TV programming.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
