Streaming continues to gain share of the overall TV market, while the valuation of Roku (NASDAQ:ROKU) stock is still reasonable and the company’s growth remains strong.
Although some view Netflix’s (NASDAQ:NFLX) recently reported, very poorly received first-quarter results as negative for Roku, I think that Netflix’s earnings will end up being positive for Roku and its shares.
Streaming Is Growing and Roku’s Valuation is Reasonable
In March, 29.7% of all TV viewing was carried out using streaming, representing a one percentage point increase versus the previous month and a new, all-time record. Since Roku is the leading gatekeeper of all streaming channels in the U.S. and one of the sector’s leaders globally, the fact that streaming’s share of TV watching continues to climb is quite positive for Roku and ROKU stock.
Meanwhile, ROKU stock is changing hands for about 3.7 times analysts’ average 2022 revenue estimate for the company. That’s a fairly low valuation for a company whose sales jumped 55% last year and whose earnings before interest, taxes, depreciation, and amortization (EBITDA), excluding certain items, was $217 million in the second half of 2021.
Netflix’s Results Will Be Positive for Roku Stock
Many viewed Netflix’s unexpected loss of net subscribers as negative for Roku. However, by taking the luster off of streaming-channel owners in general and Netflix and Disney in particular, I believe that Netflix’s poor results will ultimately make ROKU stock more appealing.
That’s because, with Netflix losing subscribers, Disney’s (NYSE:DIS) Disney+ streaming channel still losing money, and both NFLX stock and DIS stock sinking lately, I believe that many investors will be looking for new ways to play the streaming revolution. And with Warner Bros. Discovery (NASDAQ:WBD) deciding to abruptly shut down CNN+ after it was available for only a month, the luster has come off of WBD stock.
Roku is a good candidate to attract many of disgruntled streaming-channel investors sooner rather than later. After all, Roku generates positive adjusted EBITDA and still rapidly adding subscribers. What’s more, since it obtains a meaningful amount of ad dollars from streaming channels, Roku should benefit significantly from the sector’s cutthroat competition.
Given Roku’s reasonable valuation, the growth of streaming, and the attractiveness of Roku compared to other streaming stocks, I recommend that growth investors buy ROKU stock.
On the date of publication, Larry Ramer did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
