What happened
Media-streaming technology expert Roku (ROKU +3.84%) found a clear signal on Friday, sending the stock as much as 7% higher in the early afternoon. The jump also had staying power as Roku's shares closed the day 6.8% higher.
Some stock price moves are simple, but this jump is not. Roku's shares rose for several unrelated reasons today.
So what
I see three significant details contributing to Roku's price gains:
- This morning's report on personal consumption expenditures (PCE, a key inflation metric) came in 5% above the year-ago reading and just 0.3% over last month's update. The price increases were just below expectations, which had pointed to annual and monthly bumps of 5.1% and 0.4%, respectively. As a result, the S&P 500 index rose as much as 1% on Friday while the more volatile Nasdaq Composite index topped out at a 1.3% gain. As a formerly high-priced growth stock, Roku is sensitive to these broad market trends, having taken dramatic price cuts due to high inflation rates over the last year. Today, the stock repaired some of those inflation-based damages.
- Two analysts updated their views on Roku today, with somewhat different perspectives. First, Rosenblatt's Barton Crockett reiterated his neutral rating on the stock while lowering his target price from $76 to $64 per share. The more likely market mover was D.A. Davidson analyst Tom Forte's reiterated buy rating with a $73 target price. That's 18% above Thursday evening's closing price. Forte called Roku's stock price "weak" in another reiteration three weeks ago, suggesting that the stock may be undervalued. Share prices have increased by roughly 8% since then.
- Last night, noted high-growth investing expert Cathie Wood's Ark Invest funds bought 65,000 Roku shares, lifting the fund's holdings to 9.13 million shares. It's just a 0.7% increase in Ark's Roku exposure, but a positive move nonetheless. The company's last update of Roku's price target pointed to approximately $600 per share on a five-year horizon. That ultra-bullish view appears to be intact today.
NASDAQ: ROKU
Key Data Points
Now what
Each one of these price-boosting events might not have moved Roku's needle very much, but they combined for a greater effect. Furthermore, the stock was a bit more spring-loaded for a sudden gain today after a 3.9% price drop on Thursday. Today, investors seem to have forgiven Roku for cutting 200 jobs in a cost-cutting effort.
All things considered, Friday's modest price increase doesn't change my view that Roku is incredibly undervalued and a fantastic investment right now.
The stock trades at 2.9 times sales, which is a reasonable ratio for a sleepy bank or a soft drink giant -- not a streaming media powerhouse whose annual sales multiplied by six over the last five years. I think Wood is onto something here.
