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Here's Why Roku Shares Are Plummeting Today

By Lou Whiteman – Updated Apr 13, 2019 at 10:05AM

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Wall Street is getting nervous that the company's shares have climbed too far too fast.

What happened

Shares of Roku (ROKU -1.68%) were down 13% on Wednesday afternoon after receiving a pair of downgrades from analysts who believe the stock has appreciated too much too quickly and are worried about its upside from here.

So what

Roku has been one of the market's top performers year to date, up more than 120% for the year prior to Wednesday's drop and still up 100% even after the sell-off. The company has enjoyed strong success in its transition from being purely a hardware maker toward adding content, ending 2018 with more than 27 million active accounts.

Check out the latest earnings call transcript for Roku.

A laptop with movie theater setting set up on the keyboard

Image source: Getty Images.

Loop Capital analyst Alan Gould has seen enough, downgrading the company to "sell" from "hold" because of what he calls "excessive valuation," according to Similarly, Macquarie analyst Tim Nollen in a separate note downgraded the company's shares to "neutral" from "outperform" on worries that competition will make it difficult for Roku to keep the momentum going.

Now what

Not everyone is convinced the best is over for Roku. Tom Forte at DA Davidson earlier in the week raised his price target on the stock to $80 from $60 and increased EBITDA margin estimates, calling Roku's nascent streaming service a driver of future growth.

As fellow Fool Rich Duprey notes, streaming television is still in its early days, and smart TVs are still far from standard. Roku has the opportunity to build off of this momentum and grab additional share both in the U.S. and internationally. How much it can add, and what that is worth to the stock price, remain to be seen.

Lou Whiteman 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.

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