Please ensure Javascript is enabled for purposes of website accessibility

Why Roku Stock Is Moving Higher on Thursday

By Daniel Sparks – Dec 16, 2021 at 8:46AM

Key Points

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

Was the stock's sharp pullback on Wednesday an overreaction?

What happened

Shares of Roku (ROKU 6.62%) jumped on Thursday, rising as much as 7.4%. As of 1 p.m. ET, however, the stock was up 3.7%.

The stock's gain comes as shares rebound from a recent sell-off. Analysts seem to be largely in agreement that the clobbering the stock took on Wednesday due to Universal Electronics' win in a patent case against Roku was overdone.

A chart showing a stock price moving higher.

Image source: Getty Images.

So what

Analysts from Susquehanna, Oppenheimer, and Benchmark said in notes to investors this week that Universal Electronics' patent win would have little to no impact on Roku's business. The pullback was an "overreaction," said an Oppenheimer analyst, who also called the decline a buying opportunity. 

The stock's decline on Wednesday worsened an already brutal sell-off for the stock this year. Shares are far below their 52-week high of $491.

Now what

Oppenheimer's urging to buy the stock on this pullback may be good advice for patient investors. While volatility in the growth stock will likely continue, the company's strong revenue growth recently suggests Roku is still early in its growth story. Moreover, the company's advertising revenue is still only a fraction of the estimated $67.5 billion in annualized ad spend still going to traditional TV advertising in the U.S. (according to eMarketer). As streaming continues grabbing market share from traditional television, Roku is well positioned to benefit from this massive tailwind both in the U.S. and globally.

While there are certainly risks to owning any stock, many of the risks facing Roku seem to be priced into the stock's more conservative valuation following a big slide in its stock price.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns and recommends Roku. The Motley Fool has a disclosure policy.

Premium Investing Services

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