Please ensure Javascript is enabled for purposes of website accessibility

Why Roku Stock Pulled Back Today

By Jon Quast - Feb 17, 2021 at 1:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One analyst raised its price target for Roku stock and simultaneously implied around 40% downside.

What happened

Shares of streaming video platform Roku (ROKU -2.76%) 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.

A visibly frustrated person lays their head on a table with a down stock chart in the background.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Roku Stock Quote
Roku
ROKU
$94.20 (-2.76%) $-2.67
Morgan Stanley Stock Quote
Morgan Stanley
MS
$79.37 (-0.74%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.