Roku (ROKU +0.12%) may be catching headlines lately because of the dramatic fall in its stock price. The coronavirus pandemic is creating supply chain disruptions, making it more challenging for Roku to secure products for customers.
Still, Roku has at least one bright green flag ahead for its future. The streaming enabler benefits from the long-running tailwind of customers preferring to stream their content instead of watching through cable connections.
NASDAQ: ROKU
Key Data Points
Roku is catching a powerful tailwind
In its shareholder letter on April 28, Roku noted that for the first time, TV streaming devices surpassed legacy pay-TV devices (cable boxes) in the U.S. The trend was a long time coming. Streaming devices have been gaining prominence over the last several years.
Streaming's popularity is primarily due to the many advantages over legacy cable connections. Folks who subscribe to streaming services can view their content nearly anywhere. Meanwhile, people who get their content through cable can typically only watch it in their homes. To make matters worse, cable providers often force customers into long-term contracts for expensive bundled packages.
It's no surprise that Roku boasted 61.3 million active accounts as of March 31, an increase of 7.7 million from the same time the year before. Moreover, Roku is the No. 1 TV streaming platform measured by hours streamed in the U.S., Canada, and Mexico. That means Roku is in a great position to benefit from the shift in consumer preference for streaming over cable.
ROKU Revenue (Annual) data by YCharts.
Already, Roku has captured the tailwind to increase its revenue from $320 million in 2015 to $2.76 billion in 2021. The rapid revenue growth finally reversed years of operating income losses. In 2021, Roku generated an operating income of $235 million, 8.5% of revenue.
Investors realize Roku's potential
ROKU PE Ratio data by YCharts.
Despite Roku's stock price crash, it is still not cheap. It is trading at a price-to-earnings ratio of 89 and a price-to-sales ratio of 4.2. The valuation is near the lowest Roku has sold for in recent years, but is on the expensive side compared to the broader market.
So, even though Roku has a powerful green flag working in its favor, it may not be a suitable time for investors to buy Roku stock. Instead, it would be prudent to put Roku on your list of stocks to watch and wait for a further pullback in the share price before starting a position.
