Over the past year, the S&P 500 generated a total return of 25%, significantly higher than its long-term average. Despite that impressive performance, certain Wall Street analysts still see plenty of upside for investors, especially in some recently beaten-down growth stocks.
For instance, Rosenblatt Securities analyst Mark Zgutowicz currently has a price target of $500 on Roku(ROKU 0.14%), implying 199% upside. And Imperial Capital analyst Brian Ruttenbur recently initiated coverage on Latch (LTCH 1.87%) with a price target of $15, implying 137% upside. Of course, Wall Street's price targets tend to be short-term in nature (i.e. 12 months), and you should never build an investment thesis based on near-term expectations.
However, it's still worth taking a closer look at both of these businesses. Here's what you should know.
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1. Roku
Roku has made a name for itself as the gateway to streaming entertainment. Its platform connects viewers with premium content like Netflix and Disney+, as well as ad-supported services like The Roku Channel, the company's own streaming platform. In fact, Roku accounted for 31% of global connected TV (CTV) viewing time during the third quarter, while Amazon's Fire TV ranked no. 2 with 17% market share. And for the past two years, Roku has ranked as the no. 1 smart TV operating system in the U.S.
To further differentiate itself, Roku is building a library of original content. It debuted 30 original titles in May and another 23 titles in August, all of which are available on The Roku Channel. And in June the company introduced Roku Recommends, a weekly program that highlights trending TV shows and movies. Roku Recommends aims to drive engagement by steering viewers toward popular titles, and perhaps more importantly, it gives advertisers an opportunity to reach viewers that typically stick to premium content.
Financially, Roku's performance has been impressive. In the third quarter, active accounts grew 23% to 56.4 million, and streaming hours jumped 21% to 18 billion. That uptick in engagement is all the more noteworthy because traditional TV is moving in the opposite direction. In fact, traditional TV viewership among the prized 18-to-49-year-old age demographic fell 19% during the quarter. Not surprisingly, Roku's ad business is thriving: Revenue surged 51%, and the company posted a GAAP profit of $0.48 per diluted share, up from $0.09 in the prior year.
Going forward, Roku is well positioned to maintain that momentum. Management's pursuit of original content appears to be paying off, as The Roku Channel ranks among the top five channels on the platform -- an impressive feat given the wealth of popular streaming content available. Assuming the company continues to post high double-digit revenue growth, it should certainly be possible for this stock to rise 199% in the next 12 months. But even if that doesn't happen, Roku still looks like a smart long-term investment.
2. Latch
Latch specializes in smart building technology. Its portfolio includes a range of hardware, software, and services. But its core product is LatchOS, a full-building operating system that powers a range of devices, including door-mounted access controls, intercoms, and cameras. For consumers, Latch makes it possible to unlock doors with a smartphone, grant visitor access, and control various smart home devices. And for property managers, Latch makes it possible to control access permissions remotely, reducing the need for on-site staff.
The smart building industry is currently highly fragmented, and most companies focus their efforts on part of the experience (e.g. access software, intercom devices, etc.). But Latch takes a more comprehensive approach. That value proposition makes its platform very sticky -- in fact, Latch has never lost a single customer.
During the most recent quarter, revenue came in at $11.2 million, up 120%. But total bookings skyrocketed 181% to $96 million, suggesting strong future sales growth. As a caveat, Latch is still a young company, and it's unprofitable on a GAAP basis. However, with $328 million in cash and equivalents but no long-term debt, it can afford to burn some cash while its business scales.
On that note, Latch should benefit from industry-wide tailwinds as smart lock technology becomes more mainstream. The market, which was valued at $1.6 billion in 2021, is expected to grow at 18% per year to reach $5.3 billion by 2028, according to Grand View Research. And Latch benefits from a strong competitive position, as more than three in 10 new apartments built in the U.S. feature Latch technology.
Additionally, management is expanding the business beyond apartments: LatchOS recently launched for commercial offices, and the company has already won iconic clients in Manhattan like the Empire State Building. With that new market at its back, I wouldn't be surprised to see Latch stock soar 137% over the next year. More importantly, I believe this stock could grow 10x (or more) over the next decade.
