Investing is often a balance between risk and reward, growth and stability, future promise and proven results. Among the myriad of choices, growth stocks stand out for their potential to outperform the market, especially for those looking to invest a set amount like $1,000. And right now, Roku (ROKU -10.29%) stands out as a widely misunderstood growth stock that deserves your stock-hunting attention.
Why Roku fits the bill
Roku has carved out a lucrative long-term niche for itself in the ever-expanding media streaming industry, which is becoming the cornerstone of modern media consumption.
The company has been in the game from the very beginning, starting life as the division of Netflix (NFLX -0.63%) producing the first set-top boxes for video streaming. And it's still a market-defining, dominant leader in 2024. According to the data analysts at Pixalate, devices running Roku's streaming platform software accounted for 51% of the global connected TV (CTV) market in the third quarter of 2023.
After a few quarters of stalled growth, Roku is back in the business of collecting richer revenues again. With fourth-quarter sales rising 14% year over year to $984 million, with $176 million of free cash flow, Roku's financial health looks robust.
Furthermore, Roku never stopped grabbing new users, even during the darkest days of the inflation-scented crisis. The company added 10 million net new active user accounts over the last year, landing at a grand total of 80 million names. The platform's streaming hours also saw a 21% surge over the same span, indicating not just growth but increasing user engagement.
Looking ahead, Roku has set a promising tone, aiming to continue its revenue growth and improve free cash flows. The guidance suggests an upcoming focus on long-term profitability that could reassure investors. Recent moves in this direction include an aggressive cost-cutting program and very light price increases after riding out most of the inflation storm without reprinting any price tags.
The company is aware of the challenges posed by an unstable macro environment and a recovering ad market, yet it still anticipates sales to rise by roughly 20% year over year to approximately $850 million in 2024.
The long game
Despite these strong financial figures, Roku's stock closed 24% lower on Friday, following Thursday evening's earnings release. This counter-intuitive price drop reflects market volatility and investor sentiment, but also presents a potential under-the-radar investing opportunity.
The only serious reason to sell Roku shares right now would be to cash in some recent price gains -- the stock closed Thursday's trading session at a 132% gain from the end of 2022. But then you're missing out on what's ahead, and I think you'll soon be kicking yourself about selling Roku shares at this modest plateau.
For the long-term investor, Roku's strategy aligns well with industry trends. The shift toward digital media consumption is a wave Roku is well-positioned to ride. CEO Anthony Wood often reminds investors that all media viewing and advertising should eventually go digital, and Roku stands ready to capitalize on this fundamental sea change.
Last week's price drop is similar to Netflix shares taking a deep dive in 2011, when that company turned that streaming service into a real business and started letting go of the old DVD-mailer business. You may remember it as the Qwikster debacle, nearly 6,000% of market-crushing stock returns ago.
Except, of course, Netflix's price drop followed after an uncomfortable and potentially risky strategy shift. Roku's stock is just falling after a rock-solid earnings report with decent guidance. There is no radical new strategy on the table.
In my eyes, Roku's stock took a 24% haircut for no good reason. For investors with $1,000 to invest, such moments can represent a chance to buy into a strong company at a discount. If you're looking to invest any amount in a growth stock right now, Roku presents a compelling case.
Got $1,000? Roku deserves your consideration.
With strong fundamentals, a clear growth trajectory, and a market position that suggests resilience and adaptability, Roku stands out as a growth stock that should deliver substantial returns over time. The road ahead may be bumpy, but there's nothing wrong with Roku's business. Due diligence is key, as with any investment, but Roku's recent performance and future prospects make it a worthy candidate for your investment portfolio.
I, for one, am planning to double down on my Roku investment as soon as I stop writing about it long enough.
