The stock markets witnessed a trading bloodbath over the past week. Just on March 9, major U.S. indexes such as the Dow Jones and S&P 500 fell close to 8% after crude oil prices fell by 30% that day. In the past month, the indexes have fallen about 20% and into bear market territory, driven by the world's response to the rising number of COVID-19 cases caused by the novel coronavirus.

This has meant that growth stocks such as Roku (ROKU 5.41%) have experienced a strong pullback. Growth stocks trade at high valuations and are significantly more volatile in a market sell-off.

At the time of writing, Roku shares were trading nearly 49% below record highs. Is this an opportunity for investors to buy the dip? Given the company's stellar growth metrics and total addressable market, Roku stock seems like a solid bet for contrarian investors.

A television remote in front of a screen of streaming options.

Image source: Getty Images.

Roku continues to benefit from cord-cutting

The streaming space continued to gain momentum in 2019 and Roku remains optimistic about long-term growth. Roku says it predicts roughly 50% of TV households in the U.S. will have cut the cord or never had pay-TV by 2024.

According to a report from Leichtman Research Group, major pay-TV operators lost 4.9 million customers in 2019, compared to a loss of 1.6 million customers in 2018. 

Roku's shareholder letter states: "2019 was a tremendous year for TV streaming as the massive shift of the TV ecosystem gained momentum. These developments were a clear indication that traditional media, as well as new entrants, plan to compete aggressively in OTT and we believe Roku is the best platform for them to engage streamers."

Strong revenue growth

In the fourth quarter of 2019, Roku managed to increase sales by 49% year over year to $411.2 million. Its platform sales were up 71% while player revenue rose 22% in the quarter ended in December. Though most people associate Roku with streaming devices, the company sells them at or near cost price to bring consumers into its ecosystem.

For the full year of 2019, the company sales topped a billion dollars and it continued to be the No. 1 streaming platform in the United States in terms of hours streamed. Roku claimed that in 2019 almost 33% of smart TVs sold in the U.S. were Roku TVs.

Revenue growth was 52% in 2019, driven by a 78% rise in platform sales. It added 9.8 million active accounts last year, bringing the total to 36.9 million. The average revenue per user now totals $23.14 (up $5.19 year over year), while the streaming hours for 2019 rose by 16.3 billion to a record 40.3 billion hours.

Huge potential in advertising

Roku experienced a significant growth in monetized video ad impressions and streaming hour growth last year. It acquired Dataxu to gain traction in the over the top (OTT) ad segment where advertisers can leverage its capabilities while buying ad space from Roku as well as from publishers.

Roku's demand-side platform will help advertisers transact in a scalable and automated method. We have seen that the platform segment accounts for the majority of total sales for Roku and it continues to be the key revenue driver for the company.

The global OTT market is estimated to touch $179.9 billion by 2025, according to ReportLinker, an annual growth of 14.3%. This provides Roku with enough room to grow sales significantly in the next decade. 

What next for investors?

Roku is firing on all cylinders. This has sent its stock significantly higher over the years. Despite the recent fall in share price, Roku investors have gained a mammoth 600% since its IPO.

The company has a price-to-sales ratio of 7.2 and a forward price-to-book ratio of 17.7. It is still reporting a non-GAAP (adjusted) loss and is focusing on growth and innovation. But Roku has managed to increase EBITDA from negative $3.33 million in 2017 to $35.8 million in 2019. Analysts expect EBITDA to touch $225 million by the end of 2022.

One major driver can be Roku's expansion in international markets that will result in a rise in sales. Roku is at the epicenter of an industrywide shift toward streaming and it continues to launch products to expand presence in the streaming segment. Given the market size, robust revenue growth, and expanding profit margins, Roku stock continues to remain a winning bet for long-term investors.