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3 Reasons to Buy the Drop in Roku Stock

The streaming wars made ROKU their latest victim, but don't let that scare you off this hot stock

Another one bites the dust. The streaming wars continue to heat up and Roku (NASDAQ:ROKU) is the latest company to fall victim. Last Friday, the company’s shares fell below $100 — which is quite a large drop from its 52-week high of $176.55. 

Source: Fozan Ns /

Roku’s shares fell 30% last week alone, making it the company’s worst week since it went public two years earlier. The stock fell after Pivotal Research turned bearish on the stock and gave it a “sell” rating. 

And according to a Piper Jaffray analyst, the stock may not have hit its bottom yet. Analyst Craig Johnson predicted Roku stock could fall by another 30% in the coming months. 

Why ROKU Stock Has Taken a Hit

The Roku stock drop has been a surprise to many analysts, because the company seems to have made all the right moves over the past year. Even after the recent price drop, the stock is still up 252% year-to-date.

Then Apple (NASDAQ:AAPL) announced its streaming service would be free for any customers that purchase a Macbook, iPhone or Apple TV. The streaming service is ordinarily priced at $4.99 per month.

Investors weren’t pleased to learn that Apple would be undercutting Roku on price. Immediately following Apple’s announcement, Roku stock suffered its steepest price decline since March. 

3 Reasons Not to Overreact to ROKU’s Stock Price

In my opinion, investors overreacted to the news and Roku’s fundamentals are just as strong as they were before Apple’s announcement. Here are three reasons the stock drop isn’t such a bad thing.

  1. The company corners the market on connected TV devices. According to Statista, ROKU leads the market in connected TV devices. The company accounted for 30% of all devices sold during the first quarter of 2019. When it comes to smart TV sales, the company outperforms its closest competitor by a long shot. The company will have to deal with increased competition in the coming year. But it’s going to take a lot for Apple to chip away at Roku’s lead.
  2. Roku stock could benefit from the streaming wars. In many ways, the ongoing streaming wars could help Roku’s business. With more streaming services available, consumers will likely spend more time viewing these subscriptions on a ROKU device. 
  3. The company has an active and engaged customer base. And finally, the company should do just fine because it already has an active and engaged customer base. The company’s customers grew 40% year-over-year and the company has seen strong growth both in the U.S. and overseas.

Shares of Roku could drop further in the coming weeks or months, but they will likely rebound thanks to the company’s strong fundamentals. So instead of worrying about the ROKU stock price drop, look at it as a good buying opportunity.

As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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