Roku (ROKU -10.29%) stock has been under pressure lately. Not only is the streaming company coming off an uninspiring fourth quarter, but news of Walmart acquiring smart TV maker Vizio likely also has investors worried about an increase in competition for Roku in the future. Even if it's part of a broader move for Walmart to go after rival Amazon, having the largest retailer in the world encroach on your territory simply isn't a great development for Roku.

But there are bigger problems Roku investors should consider besides what impact that deal will have on competition in the future. These are all reasons why the stock could struggle, and why the sell-off may still be in its early stages.

Roku lacks a moat

For a company to have strong growth prospects, it needs to have a moat, or a sustainable competitive advantage. Roku lacks that element. Its platform helps to consolidate streaming options, but it's by no means the only game in town. Other smart TVs also feature apps that can make it easy for people to access streaming offerings from Netflix and Walt Disney. Roku has simply been among the most popular options.

And with some companies partnering up to offer consolidated streaming packages, there may be less of a need in the future for consumers to rely on Roku's software to group all of their subscriptions together. ESPN, Fox, and Warner Bros. Discovery have recently launched a joint venture to offer a streaming sports package in the U.S. expected to be available later this year.

Given the challenges for streaming companies to generate profits, a need for consolidation could be a necessity, and that may impact the demand for Roku's products and services in the future.

The company's margins haven't been great

Roku's business has continued to grow but that doesn't mean its bottom line is in great shape. The company has been regularly incurring losses on a quarterly basis. For the last three months of 2023, Roku posted an operating loss of $104.2 million. And over the trailing 12 months, those losses total $792.5 million.

Its gross margin percentage has been within a range of 40% to 46% during that stretch, and that's with its platform gross profit making up for losses on the device side -- Roku's devices have been selling at such low prices that the segment has incurred gross losses in three of the past four quarters. Low margins are a bad sign that a company has to discount its products excessively to get them moving. While Roku's overall gross margin is still in 40-percentage territory, that's clearly not good enough for the business to be profitable.

The recent acquisition highlighted just how expensive Roku is

One thing that got my attention in the Walmart-Vizio deal is that the price tag wasn't terribly expensive. At $2.3 billion, it wasn't a huge acquisition for a company of Walmart's size -- it normally generates more than $10 billion in annual profit.

And it also highlights a potential reason why a company such as Roku may not be as appealing to an acquirer, because it sports a much higher price tag. Even though Roku shares have been sliding lately, the streaming specialist still has a market capitalization of more than $9 billion. Roku does generate about twice the amount of revenue that Vizio does, but unlike Roku, Vizio has recently been profitable. As a result, it could be difficult to justify why Roku might be worth more than 4 times as much as Vizio.

Roku's stock could be in trouble

I used to be a big fan of Roku's until I switched from it to another smart TV from Samsung and realized that not only is there not a drop-off in quality of the software, but it may even be better. I'm not convinced the company has any sustainable competitive advantage. And when factoring in its continuing losses, it wouldn't surprise me to see the stock fall even further this year.

The Walmart-Vizio deal helped bring to light just how expensive Roku stock really is -- and why it could be a bad buy even at its reduced price.