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Why Roku Stock Climbed to All-Time Highs Today

By Evan Niu, CFA - Dec 21, 2020 at 2:04PM

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A bearish Wall Street analyst raised his price target on Roku shares. Plus, news of a new strain of COVID-19 is boosting stay-at-home stocks.

What happened

Shares of Roku ( ROKU -8.72% ) have climbed as much as 5% to hit all-time highs today. A bearish Wall Street analyst increased his price target, and news of a new strain of COVID-19 that is circulating in the U.K. has spooked investors and boosted stay-at-home stocks.

So what

Morgan Stanley increased its price target on Roku shares from $150 to $200 while reiterating an underweight (equivalent to a sell) rating. Analyst Benjamin Swinburne has been pessimistic regarding Roku, believing that investors are currently overestimating the ultimate size of the company's total addressable market.

The Roku Channel interface displayed on a wall-mounted TV, with a side table and a potted plant next to it

Image source: Roku.

While Roku has seen engagement soar on its video-streaming platform throughout the pandemic, Swinburne believes the stock's premium valuation compared to peers is unwarranted. The analyst had downgraded shares of Roku about a year ago (before the pandemic hit) due to concerns about decelerating revenue growth, and the stock has gained approximately 160% since then.

Now what

The price target adjustment comes a few days after Benchmark separately raised its price target from $300 to a Street-high $410, following the announcement that Roku had finally secured a distribution deal with AT&T's WarnerMedia for HBO Max.

A new mutated strain of COVID-19 that is even more infectious has rattled investors and overshadowed the positive news that Congress has agreed on a new $900 billion stimulus deal. While broad market indexes are experiencing volatility from the development, stay-at-home stocks that have benefited from the pandemic -- such as Roku -- are rising today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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