Why Roku Stock Is a Strong Buy Now

ROKU stock - Why Roku Stock Is a Strong Buy Now

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Roku (NASDAQ:ROKU) reported positive first-quarter results which showed that the company is continuing to grow rapidly, while its longer-term outlook remains extremely attractive. Given these points, I remain very bullish on ROKU stock and continue to strongly recommend that investors buy the shares.

Strong Q1 Results for Roku Stock

Roku added a robust 1.2 million users last quarter, while its average revenue per user soared 33.5% year-over-year, Seeking Alpha columnist Andrei Ovidiu Gheorghe noted recently. According to Gheorghe, both metrics came in above analysts’ average outlook.

Meanwhile, the company’s revenue soared 28% year-over-year to $734 million, above analysts’ average estimate of $719 million. And despite the impact of the reopening of economies, along with supply chain issues that lowered the number of TVs that consumers could buy, Roku managed to increase active accounts by 2% versus the previous quarter and increase its total of such accounts by 14% YOY.

On the downside, the company’s EBITDA tumbled 54% YOY to $57.6 million. But from an EBITDA standpoint, the company remains in the black, and improving supply chain conditions should lift the firm’s margins long term.

What’s more, as I’ve noted in the past, Roku is increasing its investments at this point, and many tech companies have to take such a step for a few quarters to compete effectively in the coming years. Over time, however, I’m convinced that Roku’s profitability will greatly improve.

Roku’s Overall Outlook Is Positive

Streaming continues to take share of the TV market, and, as I noted in my previous column on ROKU stock, the company is one of the largest players in the streaming sector in the U.S. and the world.  Quoting Nielsen, Gheorghe reported that:

“For the first time, TV streaming devices surpassed legacy pay TV devices (Set-Top-Box and DVR) in weekly reach in the U.S., with 65% of adults aged 18-49 streaming TV vs. 63% watching legacy pay TV in March.”

Meanwhile, Motley Fool columnist Parkev Tatevosian stated that “Roku retained 96% of marketers that spent over $1 million on the platform, and average expenditures among that group increased by more than 50%.”

As I’ve emphasized previously, advertising dollars ultimately followers viewers, and we’re clearly seeing that trend play out with Roku. Over time, that trend will greatly boost Roku’s bottom line.

And on the valuation front, Roku is now trading at an attractive 3.8 times sales, based on analysts’ average 2022 revenue estimate.

In summary, Roku’s business is thriving, its long-term outlook is bright, and its valuation is attractive. Taken together, those points make ROKU stock a buy for investors.

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.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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