Roku Looks Like a Good Value Despite Weak Forecasts

ROKU stock - Roku Looks Like a Good Value Despite Weak Forecasts

Source: JHVEPhoto / Shutterstock.com

Roku (NASDAQ:ROKU) now looks like a good value, with the company showing strong growth in streaming, active accounts and average revenue per user (ARPU). Moreover, ROKU stock is coming off of a trough price, making it a bargain.

On April 28, Roku reported that it added 1.1 million incremental active accounts in the first quarter of 2022, bringing the total to 61.3 million. That is 14% higher than its total active accounts last year. Moreover, its streaming hours were up 14% as well. Roku’s ARPU was up 34% year-over-year (YOY) to $42.91 on a monthly basis.

This led to a significant 28% YOY growth in its quarterly revenue to $733.7 million. On top of that, the company forecasts its Q2 revenue will rise almost 10% in Q2 to $805 million.

One reason ROKU stock has been weak is that its Q1 adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $57.6 million. That was down 54% from its $125.9 million in adjusted EBITDA from last year’s Q1. Moreover, the company forecast this figure would reach zero in Q2.

Analysts now forecast that in 2022, Roku will generate almost $1 billion more in sales, putting the total at $3.71 billion compared to $2.76 billion in 2021. In addition, the same is predicted to occur by 2023 when revenue hits $4.79 billion.

As Roku has a market valuation of $13.66 billion, its price-to-sales (P/S) multiple is 3.68x for 2022 and 2.85x for 2023. If you compare this to its historical average P/S multiples, this is very cheap. Morningstar shows the range in the past six years is from 4.76x to more than 26x sales. The average is more than 12 times sales, which is three to four times higher than today.

So even with a 50% increase in its P/S multiple, the stock looks like good value. Based on these figures, it should be worth around $164.86 per share. If it takes two years for this to work out, the return to investors will still be good at 22.47% for each of the years.

On the date of publication, Mark R. Hake did not hold any positions (either directly or indirectly) in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


Article printed from InvestorPlace Media, https://investorplace.com/2022/05/roku-stock-looks-like-a-good-value-despite-weak-forecasts/.

©2022 InvestorPlace Media, LLC