It's been a long way down for anyone who decided to buy Roku (ROKU -10.29%) at its peak two years ago. The stock is down a blistering 86% since almost hitting $500 in the summer of 2021. Shares of the TV streaming pioneer are beating the market this year -- up 62% -- but already down 32% since notching a 52-week high in August.
There are winners and losers among the ranks of Roku shareholders. The starting lines are everywhere. However, from this point on it's easy to see Roku resuming its former role as a leading growth stock. Let's get into why Roku could be flipping that script at this point.
Streamers ball
There are some bearish knocks on Roku, but let's start with the bullish argument. Roku remains North America's leading operating system to get TVs online. It commands double the market share of its nearest competitor. It's a leader through after-market dongles as well striking deals with smart-TV manufacturers for built-in access.
The stock hit a high-water mark 27 months ago because investors figured that Roku would be a lousy reopening play. With pandemic-era social restrictions easing up as 2021 played out, would we really return to the creature comforts of streaming video from home for hours on end? The future turned out to be anything but scary for Roku's bustling platform.
Image source: Getty Images.
Roku had a record 73.5 million active accounts at the end of June, a 16% increase over the past year. Engagement is growing even faster, as streaming hours through Roku's operating system have surged 21% over the past year. In a world where "beat and raise" performances are typically rewarded, Roku has exceeded its own guidance for each of three quarterly updates that it has provided this year.
Things aren't perfect. Roku's first run at profitability proved short-lived, and it has now posted six consecutive quarters of substantial losses. As a company that leans on connected TV ads to bankroll the lion's share of its platform revenue, Roku is also struggling with declining average revenue per user in this sluggish market for video ads. Ad revenue growth has failed to keep up with usage on the platform.
There are silver linings to these storm clouds. Roku has posted back-to-back reports of sequential improvement on the bottom line. Analysts don't see an annual profit until 2027, but that could change if its cost controls and monetization efforts bear fruit. As for advertising challenges, Roku is starting to gain momentum. Revenue growth has accelerated in the first two quarters of this year.
Roku shares are attractively priced if you're comfortable with the lack of near-term profitability. It's the top dog in an expanding market, and you can buy Roku at an enterprise value that is just 2.6 times its trailing revenue. Growth investors may be drawn to the individual premium digital streaming service stocks, but Roku seems like a safer play on the entire basket of subscription services. With short interest at a 52-week low it's fair to say that there are fewer Roku bears out there these days. Now the market just needs to see more Roku bulls.
