One of the most powerful and recognizable trends across the economy in the past decade has been the changing video entertainment landscape. The rise of streaming is something all investors are paying attention to.

I believe Roku (ROKU 4.10%) is a smart way to play this secular shift, as it's positioned well to benefit from the industry's growth. But before you rush to buy and hold this streaming stock, you need to know more about what might be its biggest risk.

Sizing up the industry backdrop

Roku operates a true streaming platform. It has created an environment that lets advertisers target streaming viewers. This so-called connected TV setting competes for marketing budgets with traditional broadcast and cable TV.

Additionally, Roku allows viewers to aggregate all their various streaming services into one easy-to-use interface. That on its own is extremely valuable given the sheer number of choices on the market today.

This means that Roku has deals in place with some of the most popular services out there, like Netflix, Walt Disney's Disney+, Warner Bros. Discovery's Max, and Alphabet's YouTube, for example. These businesses make their services available on Roku, arranging various advertising and subscription revenue-sharing agreements.

This presents a big risk, though. These content companies are incredibly powerful when it comes to negotiations, and they might have the upper hand versus Roku when trying to obtain favorable terms. This points to the fact that Roku might need these content partners more than they need Roku.

Netflix currently has 260 million global subscribers. YouTube has an estimated 2.5 billion users. They operate direct-to-consumer business models that probably would be fine without Roku's distribution capabilities. It's hard to find information on this, but I'd be surprised if Netflix and Alphabet paid any money to Roku at all. Consequently, there's probably a lot of potential revenue being left on the table that could be showing up on Roku's income statement.

Another related concern is the possibility that the streaming industry consolidates to a small number of massive content enterprises. Let's say a decade from now, there's only Netflix, YouTube, and Disney. Roku's entire value proposition, which comes from being able to combine a large number of services into one interface, is undermined in that bearish scenario. Investors can't ignore this terminal risk factor.

Should you still buy Roku stock?

I think the best investors understand that every investment thesis has a downside. Knowing this helps you gain a better grasp of a particular company. Even with what I discussed above, however, I still believe Roku is a compelling investment opportunity.

The business has top market share among smart-TV operating systems in the U.S. It grew its account base by 10 million in 2023. These households are watching more and more content on the platform each and every year. And there's still a long growth runway for both the streaming and digital ad industries in the next decade. These positive trends give Roku sizable upside.

Now is an especially smart time to buy shares because they trade 88% below their all-time high. Roku hasn't benefited at all from the market's rally since the start of 2023 due to investor fears about near-term macro and industry headwinds.

So, the stock sells at a price-to-sales ratio of just 2.4. That's a 75% discount to its historical average. Should the business get back to posting strong growth, while inching closer toward profitability, I believe investors will be rewarded.