Roku Inc (NASDAQ:ROKU) stock has held up well under harsh market conditions. Despite competition from the biggest names in the tech industry, Roku has produced a device with strong sales and found creative avenues for revenue. While ROKU stock more than doubled after its recent earnings announcement, competitive dangers only grow.

Unfortunately for holders of ROKU stock, the company’s inability to fight its latest competitive challenge could become the equity’s undoing.

Roku Competes Well Against Big Tech

I feel some degree of reluctance on my call. I like a lot about ROKU, mostly because the company has done very well with the hand it has been dealt. First, I’m a happy Roku customer. Installation and use have been simple, and it’s been great when I want to watch programs on Netflix, Inc. (NASDAQ:NFLX) and other streamed media on a television.

I also like the Roku’s strategy. Selling the boxes for little more than cost and then earning revenue from ads has served the company and its investors well. Roku has also held its own against formidable competitors.

Existing as a relatively small company when the likes of Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT) act as competitors has been an impressive feat.

However, an even bigger threat (if one can imagine bigger threats than they have now) has emerged that will likely devastate the stock.

ROKU Stock Could Follow in Garmin’s Footsteps

To understand this new threat, investors should take heed of lessons learned from a popular tech gadget of the past. Before the invention of the smartphone, Garmin Ltd. (NASDAQ:GRMN) dominated the global positioning system (GPS) market.

Drivers sought their product as they saw the benefit of having a navigation device to guide them down unfamiliar roads. By September 2007, GRMN stock peaked at over $122 per share. However, Apple had released its first iPhone that same year.

The iPhone came with a mapping app that performed all of the functions of Garmin’s GPS device. As more consumers bought smartphones, Garmin’s GPS increasingly became a redundancy. GPS sales dropped, and by November 2008, the stock had fallen to under $15 per share, an 85% drop from 2007 highs.

ROKU stock faces a similar danger of “getting Garmined.” Television manufacturers such as Sony Corp (ADR) (NYSE:SNE), Samsung Electronic (OTCMKTS:SSNLF), and LG Display Co Ltd. (ADR) (NYSE:LPL) have begun selling smart TVs (televisions with built-in streaming capabilities). The smart TV will render the Roku box obsolete over time.

Garmin found other niches and its stock has partially recovered. Perhaps Roku can also discover streams of income not tied to its box. However, even if other revenue sources appear later, built-in streaming bodes poorly for ROKU stock in the near term.

Current Financials and ROKU Stock

The equity’s financial metrics also place ROKU stock in a precarious position. The stock rose by more than 100% after its October earnings release. Since then, the stock has maintained the levels achieved after the earnings announcement. However, this stock price has likely been driven higher by growth expectations.

Reduced need for the product would likely stop growth in its tracks. Further, analysts have not predicted profitability until 2020. They forecasted a profit of 34 cents per share for 2020 and current stock prices remain in the mid-40s. This places the stock at a forward price-to-earnings ratio for 2020 of over 130.

It remains unknown whether analysts considered the future obsolescence of the Roku box in their forecasts. Other forecasts remain in question as well. Analysts have predicted over 25% revenue growth for both this fiscal year and the next one. However, even if ROKU meets or slightly exceeds forecasts, achieving profitability remains unlikely.

Further, by 2020 smart TV penetration will have increased and that could bring downward revisions in both revenue and earnings targets. While Wall Street has so far ignored Roku’s high valuation, obsolescence would likely sour investors on the stock.

Concluding Thoughts on ROKU

Unfortunately for current holders of ROKU, Roku remains a great company burdened with a narrow moat. The company has employed creative strategies and competed effectively against the largest giants in the tech industry. However, even if big tech does not get Roku, the advent of the smart TV looks to be an unstoppable threat.

As with Garmin before it, competitors offering their product as an incidental feature will likely hurt Roku sales. ROKU could find a niche and widen their moat. However, the stock will likely suffer even if a new business line emerges. Given high valuations and a dangerously narrow moat, investors should not expect to stream gains with ROKU stock.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.