What happened
Shares of streaming video platform Roku (ROKU 2.27%) were down along with many other growth stocks today. But Roku stock also received an upgrade from Wall Street that was more like a downgrade, adding further downward pressure. As of 1:30 p.m. EST, Roku stock was down 5%.
So what
Morgan Stanley is raising its price target for Roku stock. This is typically celebrated by investors -- it's not uncommon to see a stock spike 10% or more with a raised price target. However, Morgan Stanley's isn't much of a compliment. Rather than its previous price target of $200 per share, the firm has raised Roku's price target to $275 per share, according to The Fly.
Image source: Getty Images.
The only problem is, Roku stock trades around $445 per share! Therefore, even though Morgan Stanley has increased its bullishness for Roku, it believes the stock might have almost 40% downside. Welcome to the sometimes confusing world of Wall Street.
Now what
Morgan Stanley's move recognizes the growth of Roku's business but questions the stock's valuation. To be sure, Roku stock is on an amazing run -- up close to 250% over the past year. And the stock does have a pricey valuation at a price-to-sales ratio of almost 37. That said, it's always important to look beyond static valuation metrics and ask if the company is well positioned over the next five to ten years. Great companies often trade at lofty valuations.
Roku gets another chance to prove it's worthy of its price tag when it reports earnings on Feb. 18 after the market closes.
