Tech bubbles are popping all over Wall Street. One catalyst was lower-than-expected second-quarter earnings reported by Apple’s (NASDAQ:AAPL) enterprise partner Jamf (NASDAQ:JAMF). The miss lowered confidence in business IT spending and Apple stock and fueled a sell-off of overvalued names. But some that are not overvalued, including Roku (NASDAQ:ROKU) stock, also dipped.
I’ve written that Roku benefits from unparalleled ease of use, exceptionally high number of channels and its first-mover advantage.
Roku’s Market Share Should Jump
Importantly, Roku’s products were rated much higher than Apple TV. And 54% of survey participants rated Roku six out of 10 or higher, versus 38% for Apple TV. I expect Roku to take market share from Apple TV.
Over time, I anticipate that Roku’s superior apps, its own channel and live TV channels will help it also take market share from Amazon.
Here’s another important positive sign. Deutsche Bank reported that “Roku had pretty consistent ownership across income levels.” This bodes well for Roku to be integrated with more higher-end TV brands, such as Samsung and LG.
Multiple Analysts Are Upbeat on Roku Stock
According to Seeking Alpha, Needham analyst Laura Martin wrote that”Roku is set to win in streaming TV and film content apps.” According to Martin, the valuation of the U.S. version of Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTube is $40 billion. Since the market cap of Roku is less than $20 billion, she thinks shares can climb much further. Needham has a $190 price target and a “buy” rating on Roku.
The analyst also believes that Roku has multiple “hidden value drivers.” These include the large amount of data it has and can monetize more fully. Martin thinks Roku can allow other providers to place shows, with Roku keeping a percentage of the ad revenue.
On Aug. 26, Citi started coverage of Roku with a $180 price target and a “buy” rating. Citi’s Jason Bazinet is as upbeat on the company’s metrics as I am. He predicts active users will jump to 125 million from 40 million at the end of Q2. Moreover, Bazinet predicts the company’s sales per active user will reach $180 by 2022 versus $115 in 2019.
Finally, in an Aug. 18 note, research firm Berenberg increased its price target on Roku to $181 from $145. Analyst David Beckel says the platform can generate meaningful revenue from “internet-based performance ads.” After Q2, Beckel is more upbeat on long-term ad revenue opportunity and the outlook overseas.
The Bottom Line on Roku Stock
With analysts’ price targets ranging from $180 to $190 and Roku trading around $162, the stock’s valuation doesn’t seem excessive. Further Roku, despite the fact that it’s very well-positioned to capitalize on huge opportunities, has a much lower price-sales ratio than high fliers like Shopify (NYSE:SHOP), The Trade Desk (NASDAQ:TTD) and Teladoc (NYSE:TDOC).
Amid the tech bloodbath and ahead of colder weather when the novel coronavirus outbreak could worsen in some places, investors may want to postpone buying Roku stock until it reaches $135. But once a vaccine is launched in Q4, the shares should soar.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.