The stock of Roku (ROKU 2.66%) hit another all-time high shortly after Monday's open. It gave back all of those gains -- and then some -- a couple of hours into the trading day, but that's just how the volatility rolls for the streaming video pioneer that happens to be this year's hottest tech stock.
The catalyst kicking off the new week with a short-lived pop is a rosier spin by SunTrust analyst Matthew Thornton, who boosted his price target on the shares from $63 to $160. Thornton concedes that he was wrong to stay on the sidelines during Roku's massive run in 2019. And he is now more upbeat in sizing up Roku's execution, fundamentals, and strategic value as it becomes the investing community's top play for the cord-cutting revolution. But this doesn't mean that Thornton is now bullish on Roku.
He's sticking to his neutral hold rating on the shares. Thornton will meet with Roku CFO Steve Louden later this week, but he remains skeptical about the stock's valuation after its wealth-altering gains this year. Thornton doesn't feel that near-term expectations for Roku's fast-growing platform revenue are conservative. Lifting his price goal on the stock from $63 to $160 may seem like quite the catapult, but even his new target was 6% below where the stock finished at the end of last week.
Making streams come true
Good luck finding a hotter tech stock than Roku this year. The shares have soared 454% through the end of last week, and the stock was nearly a six-bagger at Monday morning's all-time high. Investor sentiment has turned bullish for a stock that didn't get a lot of love beyond the initial burst following its late 2017 IPO and actually declined sharply last year.
Roku's transformation from being a pioneer in the low-margin hardware market that turns traditional TVs into streaming hubs, to being a leader in the high-margin platform itself has been breathtaking. Revenue soared 59% in its latest quarter, more than double the growth rate it was posting when it went public two years ago.
Consumers have taken to Roku either by buying the branded streaming hardware or relying on one of the many smart television manufacturers that offer Roku TV as the default platform. There are now 30.5 million active accounts, and they're spending more than 3 billion hours streaming through Roku in any given month.
SunTrust's Thornton isn't the only one concerned about the stock outpacing its fundamentals this year. There were nearly 8.8 million shares sold short as of mid-August. Short interest peaked at nearly 15 million at the end of January, but the stock has squeezed many of those bears out through its huge gains in 2019. Put another way, the 8.8 million shares shorted now have a much higher total value than the more than 14.9 million shares that were betting against Roku earlier this year.
It's still hard to bet against Roku. Folks investing in consumer discretionary stocks are placing their wagers on digital television, and Roku is a no-brainer as a winner that will emerge no matter which of the streaming services come out on top. Corrections will come -- as they always do -- but staying on the sidelines now when Roku's leadership has never been more clear seems as ill-advised as staying on the sidelines when the year began.