Roku (ROKU -10.29%) seriously disappointed investors when it reported fourth-quarter 2023 financial results last month. Revenue of $984.4 million, up 14% year over year, beat analyst expectations. However, soft guidance really worried shareholders, as management believes macro and industry headwinds will remain an issue.
As of this writing, the streaming stock is down 33% since that announcement, and it currently sits at 87% below its all-time high. This is a huge disappointment when compared to the broader indices that continue to hit new records.
But over the long term, can Roku stock help you become a millionaire one day?
Riding the streaming trend
Roku is without a doubt one of the best businesses that's positioned to ride the secular trend shifting consumer viewing habits from cable TV to streaming entertainment. It connects viewers with all of their favorite content options in one easy-to-use interface, which also creates an environment for advertisers to target a streaming audience.
In the U.S., fewer than half of all households still have their cable subscriptions, a share that continues declining every year. As more people switch to streaming, Roku could see strong demand trends for its popular media sticks and smart TVs.
And there is still a lot of room for advertising spending to catch up to where the eyeballs are. As marketing executives direct their ad budgets away from linear and broadcast TV, streaming is the natural beneficiary.
Roku is already a successful enterprise in the streaming landscape. It has leading market share in the U.S., Canada, and Mexico. Consequently, it's in a favorable position to capture the industry's growth in the decade ahead.
Competitive factors
Despite its positive attributes, Roku investors shouldn't let their guards down. As is the case in any high-growth market, competition is fierce. This is true when it comes to streaming.
At a high level, Roku can be viewed purely as a distribution platform. This pits it against some deep-pocketed tech heavyweights, like Apple, Alphabet, and Amazon. All have streaming hardware devices, and all of them also offer streaming services. They have the financial resources and human capital to invest aggressively in video entertainment.
From Roku's perspective, the fact that it has leading market share in North America is a testament to how well it resonates with customers and advertisers. Nonetheless, it will certainly have its work cut out for it to maintain growth and achieve consistent profitability going forward.
Being greedy when others are fearful
Roku stock hasn't participated at all in the market's booming rally. Investors are concerned that macro headwinds will continue to pressure advertising spending in the near term, and this has pressured the shares.
But for those who are bullish on Roku, there might not be a better opportunity to scoop up the stock. It currently trades at a price-to-sales multiple of under 2.6. This represents a 75% discount to the stock's historical average ratio of 10.
According to Wall Street analyst estimates, Roku is expected to increase revenue by 13.6% and adjusted EBITDA by a whopping 373% on an annualized basis over the next three years. The current valuation looks incredibly attractive based on these forecasts.
To be clear, those who are able to invest a larger initial amount into the stock, while also adopting an extremely long-term mindset, have a much greater chance at becoming millionaires from their Roku stake. This allows compounding to work its magic.
