One day after an analyst argued that Roku (NASDAQ:ROKU) stock was overvalued following a massive gain this year, another analyst is raising her 12-month price target for the stock by more than 40%. Needham analyst Laura Martin thinks investors underestimate the company's competitive position and its growth potential.

The bullish price target comes not long after Roku's impressive first-quarter update, which featured accelerating revenue growth, improved monetization per user, and a surge in streaming hours compared to the year-ago quarter. Martin seems to think there's more where this came from.

A young woman watching TV while eating popcorn

Image source: Getty Images.

The path to $120

Martin reiterated her buy rating and raised her 12-month price target for Roku stock from $85 to $120 on Wednesday. In addition, she said (via Barron's) that Roku remains her top stock pick for 2019.

The analyst cites four competitive advantages for Roku, according to The Fly. Those are advertising, revenue optionality upside, a massive base of active users, and M&A (mergers and acquisitions) potential.

When it comes to advertising data, the analyst pointed to Roku's structural advantages over competitors, as an open platform serving all streaming services. "Roku's data is better structurally because it is based on audiences viewing hundreds of different [over-the-top] streaming apps," she wrote.

In addition to giving the company better data for streaming services on its platform to optimize audience engagement, Roku's open platform makes it less of a threat to rivals like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) that compete with each other in platforms and with their own subscription-based streaming services. Since Apple and Amazon produce their own original content and sell subscriptions to their own streaming-TV services and Roku doesn't, Apple and Amazon are more direct competitors with each other than Roku is with either.

Furthermore, Roku's 29.1 million active accounts at the end of its first quarter and 8.9 billion hours of streamed content during the period make its platform a must-have for new streaming services; this gives Roku revenue upside as upcoming streaming services like Apple's and Walt Disney's launch on the platform.

Finally, Martin says the company's market capitalization is still small enough for further growth, or for the company to get acquired.

Underlying momentum

Beyond Martin's take on Roku's competitive advantages, the company's underlying fundamentals are notable in their own right. Consider that the company's revenue growth rate accelerated in the first quarter; revenue during the period rose 51% year over year, up from 45% growth in Q4. In addition, Roku's gross profit soared 60% year over year in Q1 to $100.9 million. And, as streaming hours on the platform skyrocketed 74% year over year and average revenue per user increased 27%, all of this is helped by promising growth in user engagement.