Shares of Roku (NASDAQ:ROKU) dropped as much as 4.8% lower on Friday, hamstrung by a bearish note from Wells Fargo analyst Steven Cahall. The pessimistic call on the media-streaming technology stock counterbalanced an upgrade that drove Roku shares higher yesterday.
Cahall downgraded Roku from overweight to equal weight, meaning that the analyst now believes that Roku shares don't provide an exceptional investment opportunity anymore. He also lowered the price target on the stock from $450 to $388 per share. That's still 16% above Roku's closing price on Thursday, but the Wells Fargo analyst sees better ideas elsewhere because this stock looks "fully valued" at current prices.
On Thursday, Guggenheim analyst Michael Morris had upgraded the same stock from neutral to buy with a price target of $395 per share. Morris said that the company's position of leadership in the thriving digital media market should support strongly rising stock prices for years to come.
All in all, the two analyst reports have largely canceled each other out and the stock is back roughly where it was on Wednesday.
This bulls-versus-bears battle is nothing new. Roku's soaring financial results and the equally lofty share price have provided lots of support for both sides of this argument in 2021. We shareholders have enjoyed a 79% return over the last 52 weeks but the stock is also trading 35% below July's all-time highs.
Yes, the stock looks expensive at 200 times trailing earnings and 245 times free cash flows, but you're buying a well-run company in the early days of an exciting growth market. Cahall's cautious analysis may make sense to dyed-in-the-wool value investors but his colleague at Guggenheim stands closer to my own appraisal.
This chart shows how the shares are sliding sideways even as Roku's top-line sales are skyrocketing:
Roku is a superstar of a stock in my view, and I'm sorely tempted to add a few shares to my own Roku holdings while the stock is floating far below its earlier highs.