Among U.S. tech stocks with high market capitalizations, good luck finding a better performer in 2019 than Roku (NASDAQ:ROKU). Roku stock rose over 330% last year. What might be worrying some investors is that ROKU showed some weakness at the end of 2019. After opening on Dec. 26 at $146.59, ROKU stock price early this morning was $136.
Should the owners of Roku stock be concerned?
Big Competitors
While video streaming is a high growth market and ROKU is the clear market leader in the U.S., it is going up against some huge competitors. Any company that offers a streaming platform of its own — whether through hardware or an app that appears on smart TVs — is competing with ROKU.
That means ROKU is going up against some of the biggest tech giants, including Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google. In light of that situation, investors can get a bit anxious about ROKU, and Roku stock could overreact if one of those big competitors makes a potentially threatening move.
Big Price Movements
While the explosive surge of ROKU stock price was a big story in 2019, the stock’s other notable trend was the volatility of ROKU stock price.
Because the company is a such a small player among giants, investors get spooked easily. The most extreme example of this phenomenon took place in September, when a perfect storm hit. Roku stock was climbing after the company delivered impressive Q2 earnings in August.
Then Apple announced that it would charge $4.99 per month for Apple TV+ and that a subscription would be free for a year for those who bought one of its devices.
That was shortly followed by a one-two punch of Comcast (NASDAQ:CMCSA) announcing free Infinity Flex streaming boxes for internet-only subscribers and Facebook (NASDAQ:FB) announcing that its new Portal TV would support video streaming in addition to video calls.
The Street got much more bearish about ROKU, resulting in a 19% single-day drop by ROKU stock and a 41% loss in value in under one month as the stock dropped below $100.
Roku stock recovered quickly, but it suffered another big single-day drop of 16% on Nov. 7 after the company reported its Q3 earnings. In the context of the price movements by Roku stock in 2019 — and its continued ability to bounce back — the slide since Christmas doesn’t seem particularly worrisome.
Investment Analysts Like ROKU
Despite its occasional volatility and the fact that some very big tech companies are among its competition, investment analysts like Roku stock. Among those polled by CNN Business, ROKU earns a solid average rating of “buy” with a median 12-month price target of $155.78, about 15% above the current ROKU stock price.
The love isn’t universal. For example, a downgrade by Morgan Stanley in December led to yet another of the big price drops that ROKU is known for, as the shares sank 15%.
The Bottom Line on Roku Stock
ROKU may have ended 2019 on a down note, but that doesn’t mean this tech stock is in trouble, now or in the foreseeable future.
The streaming video business is hot and, despite its intense competition, Roku remains solidly on top in the U.S. market. While it has a tendency toward periodic volatility, the company is a favorite of investment analysts who think the stock can climb meaningfully in 2020. In other words, given its current high valuation, ROKU is unlikely to repeat its barnstormer performance of 2019, but the recent decline is more of a buying opportunity than a red flag about the company’s future prospects.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
