Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

2018 has been a bad year for Roku (NASDAQ:ROKU), with the over-the-top streaming device maker losing 15% of its market cap in less than six months -- but don't despair. If this year hasn't been great for Roku, this past week really has been.

Since trading opened on Monday, Roku stock has jumped 10% in price. It's been helped along in this journey by positive commentary from three separate analysts. Here's what they're saying.

The Roku Channel advertisement

Image source: Roku.

A sunny start

The week opened on a positive note for Roku shareholders when on Monday, analysts at KeyBanc (one of Wall Street's best analyst firms) discussed the results of "proprietary checks" they've conducted on Roku's business, and decided to reiterate their overweight recommendation on the stock. KeyBanc's research showed signs of "accelerating growth in customers on the Roku platform and for virtual" multichannel video programming distributors in general, according to StreetInsider.com (requires subscription).

Such growth could show up as early as Roku's next quarterly earnings report, which is probably due out in August. Longer term, KeyBanc is looking for Roku to announce new licensing deals to incorporate its streaming technology into television hardware built by original equipment manufacturers (OEMs), and to make progress building out its own Roku Channel offerings.

Roku shares were trading for barely $40 when KeyBanc recommended it on Monday, but KeyBanc predicted they would hit $44 per share within a year -- a respectable 10% profit. Just yesterday, the stock closed up over $45.

Rushing to catch the train

Such a rapid run-up was bound to catch Wall Street's attention, and yesterday, two other analysts quickly chimed in with their own reports on Roku. In a new rating, Australian investment banker Macquarie predicted Roku will outperform over the next year, and assigned Roku stock an even higher price target than KeyBanc had projected -- $49 a share.

"Roku has centralized the future pay TV landscape ... [and is] in a position to capitalize on its role as a new-age intermediary," wrote Macquarie. "Where once cable providers aggregated content through channels, Roku now plays the role as an aggregator of digital services through its smart TV licensed [operating system], [direct-to-consumer] licensed products, and its own players."

Thus, Macquarie also seems to have its eye primarily on Roku's ability to ink licensing deals with OEMs -- rather than profit solely from the sale of its own over-the-top streaming boxes. (In that regard, Amazon's recent deal to place its Fire TV streaming technology into Best Buy's house-brand TVs would appear to be the biggest threat to watch.)

Jumping on the bandwagon

Not to be left out, a previously little-heard-of analyst by the name of Cannonball Research gave its own endorsement of Roku yesterday -- and with a higher price target than either of the other two analysts.

As described in yet another note on StreetInsider, Cannonball highlighted the role that "significant growth in video advertising revenue which we expect" will play in Roku's business. Cannonball is predicting that over-the-top video advertising will grow at a 93% annualized clip over at least the next couple of years, helping Roku generate $114 million in EBITDA in 2020 if it can capture some of that growth. (For context, S&P Global Market Intelligence shows that all of Roku's platform revenues together, including video ads, interactive ads, brand sponsorships, and so on amounted to less than that -- $105 million -- in 2016. Platform revenue more than doubled to $225 million last year, so as ambitious a goal as 93% growth may sound, Roku appears to be fulfilling this prediction already.)

Valuing Roku

Does this all mean that Cannonball is right about Roku stock being a buy, and rocketing another 30% to reach $56 a share in 12 months? Not necessarily. In fact, despite all these recent upgrades, Roku stock has already slipped back beneath KeyBanc's $44 target price -- the prediction that sparked investors' buying frenzy back on Monday.

Roku's business is certainly going great. Still, with Roku currently unprofitable and expected to lose money again this year, it's to be expected that its stock price will alternately swing high and swing low from time to time, depending largely on market sentiment. I'd even go so far as to say this will probably continue to be the case until investors get some solid earnings numbers on which to hang a "right" valuation.

When will that happen? Analysts on average say that Roku will turn profitable next year, with per-share profits of $0.02. If that's how things play out, we'll be able to have a discussion of whether a P/E ratio of 2,200 ($44 per share, divided by $0.02 per share in profit) is too high, too low, or just right next year.

But until those estimated earnings become actual, any speculation on where the stock price is heading -- whether it comes from KeyBanc, Macquarie, Cannonball, or me -- is just that: speculation.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.