Love it or hate it, and people certainly do both, Roku (NASDAQ:ROKU) stock is a growth name that comes with a related risk/reward profile. That much was on display last year when shares of the streaming entertainment hardware maker more than tripled in value.
Of course, when a company is flying high in a rapidly growing industry, it’s sure to draw competition, and markets will price in the competent threats when valid. The latest concern on that front, playing a big part in ROKU stock’s 8% decline over the past month, is news that Amazon’s (NASDAQ:AMZN) Fire TV streaming device has topped 40 million users, well ahead of Roku’s 32.3 million.
The other recent drag on ROKU stock was last month’s news that long-time Chief Financial Officer Steve Louden is departing. Louden has held that position with the company since October 2015 and Wall Street loves c-suite consistency.
“Steve has been a valuable member of our leadership team. He managed our finances through our transition to a public company and rapid expansion into new areas of streaming,” Roku CEO Anthony Wood said in a statement.
If the company is to believed, and there doesn’t appear to be any reason not to, Louden’s departure boils down to his desire to move back to Seattle; Roku is based in Northern California.
Competition Actually Helps
There’s no getting around the fact that Fire TV is a competitive threat to Roku, but the competition in the streaming content market will likely benefit the company as Amazon, Apple (NASDAQ:AAPL), Disney (NYSE:DIS), Netflix (NASDAQ:NFLX) and others fight a costly battle for content supremacy.
Siva K. Balasubramanian, Ph.D., associate dean of the Stuart School of Business at the Illinois Institute of Technology, sees the streaming content tussle as a potential catalyst for Roku stock.
“This competition benefits ROKU. In advertising specifically, ROKU offers the Connected TV ad experience that offers advantages for advertisers in that ads are better targeted, and also audiences are unable to skip or avoid these ads,” said Balasubramanian. “Roku’s business model is expected to benefit from these strong underlying trends for the foreseeable future.”
The content wars speak to the growth of streaming itself.
“Streaming is an increasingly popular way to watch TV, and is expected to grow further over the next 5 years,” said Balasubramanian. “Meanwhile, competition among players in the streaming domain has intensified significantly recently, with the entry of Apple and Disney to a field previously dominated by Netflix and Amazon.”
Balasubramanian said the competition should benefit Roku as “a relatively neutral aggregator of TV shows and movies.”
Bottom Line: Great Expectations
Roku stock was the best-performing technology name of 2019, and with accomplishments come expectations, reasonable or not. Wall Street has a tendency to focus on streaming and how many smart TVs the company has sold, leaving robust customer dedication and a booming advertising business as under-appreciated elements of the big picture when it comes to ROKU stock.
In other words, paying 15 times this year’s sales for ROKU stock isn’t a discount, but it isn’t an unreasonable price for this company’s combination of catalysts and potential either.
And for those that don’t want to marry Roku, and would prefer casual dating, there’s 13.36%, the percentage of the shares that are sold short. That suggests any credible near-term rally could be boosted by short covering.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.