Although Roku (ROKU 1.38%) shares are up 72% this year, outpacing the broader Nasdaq Composite Index by a wide margin, they remain 85% off their all-time high. A general slowdown in the streaming and digital advertising industries, coupled with investors moving away from riskier stocks, has certainly hurt Roku shareholders. 

But investors who believe in Roku's long-term prospects can't forget about a key element of the business and its success. In fact, it just might give you the optimism you're looking for right now.  

Along the same vein, a magnificent competitive advantage might make this streaming stock a screaming buy. Let's take a closer look.  

Following Warren Buffett 

Famed investor Warren Buffett, who has a legendary track record as the head of Berkshire Hathaway, is well known for his successful investment strategy. One of the top traits he looks for when analyzing companies is the presence of competitive advantage. This unique characteristic allows a business to outperform its rivals in a particular industry. 

This goes hand-in-hand with an economic moat, a term made popular by Buffett. A company's economic moat comes from having sustainable competitive advantages. And these can come from multiple sources, like a strong brand, network effects, economies of scale, or high switching costs. The thinking is that it's incredibly difficult for any business to compete effectively with an enterprise that has an economic moat. 

What makes Roku special 

In Roku's case, it possesses network effects. The company operates a three-sided platform that connects viewers, content providers, and advertisers. And the presence of one of these stakeholders benefits everyone else. 

To specify, the more streaming services that Roku is able to offer, from the likes of Netflix, Walt Disney, or Warner Bros Discovery's Max, among many others, the more viewers it can attract. As of March 31, Roku had 72 million active accounts, up 17% year over year. These accounts streamed over 25 billion hours of content during the first three months of 2023. 

Consequently, the more accounts that Roku can sign on, the more valuable its advertising platform becomes to businesses that are looking to market to these viewers. Founder and CEO Anthony Wood is banking on more ad dollars shifting from traditional cable TV to streaming and connected TV. 

Network effects are arguably the strongest economic moat around. That's because it's almost impossible for a company to create this from scratch because of the classic chicken-and-egg problem. 

Let's break it down. A start-up that wants to compete with Roku would need Netflix or Disney to want to be on its platform. But without any viewers in the first place, this would be virtually impossible. And advertisers won't look to spend money on this platform because no eyeballs are there. This helps explain why Roku has a strong position in the industry. 

Riding the streaming trend 

For investors who want a streaming stock in their portfolio, Roku might be a solid investment choice. Not only does it benefit from network effects, as I discussed above, but it appears to be able to avoid the streaming wars entirely. 

Investors are all too familiar with how insanely competitive the streaming landscape is. Consumers have so many choices when figuring out what to watch. And because of the crowded space, companies must spend enormous amounts of money to create and license content to keep viewers engaged. 

As a platform that simply just connects the main parties in the streaming industry, Roku is in a good position to gain as the overall market grows. There are no absolutely sure bets in investing, and Roku faces its fair share of market risks. But at today's bargain-bin share price, the stock comes with more upside than risk.

With shares selling at a below-average price-to-sales multiple of 3.1, investors might want to sit back, relax, and press play on the stock.