The future is always in flux. No one saw the COVID-19 pandemic coming. Razor-thin election wins can make a huge difference to politics and economics. Consumer tastes can shift much faster (or slower!) than anticipated. And nobody expects the Spanish Inquisition.
So it's not easy to set realistic long-term targets. Surprising events can come along and spoil the best-laid plans. But I wouldn't be much of an investor if I didn't have some sense of what's coming next. The timelines may be off and the precise business events will vary. Still, it's reasonable to set up directional expectations and roll with the punches.
Let's look at one of my favorite stocks to buy in this market. What should you expect from Roku (ROKU 0.73%) over the next year? Here's what I see in the media-streaming technology expert's road ahead.
Where will Roku be in 2026?
First of all, Roku will still be a growing technology business with headquarters in San Jose, California. I'm really confident in this basic prediction, though it may be a surprise to some investors.
I mean, the stock isn't exactly priced for absolute disaster, but it isn't much of a market darling, either. Roku shares are trading at 2.9 times trailing sales, more comparable to struggling low-growth retailers than exciting peers in the entertainment technology business.
Roku's stock is also down 9% in the past month, and its beta value of 2.1 points to a volatile and potentially risky investment. Furthermore, about 7% of Roku shares are on loan to short-sellers. That's not a shockingly pessimistic market view, but still comparable to the struggling retailers I mentioned a minute ago.
So I might ruffle some feathers here, but I'm pretty sure Roku will be alive and well in a year -- or many years down the road, for that matter.
NASDAQ: ROKU
Key Data Points
Sure, wise guy. What about Roku's future business prospects?
All right, let's get down to the nitty-gritty.
Roku has delivered steady growth where it really matters in recent years. It's true that earnings and cash flows took a dive into negative territory during the inflation crisis. It's also true that Roku's revenue growth ground to a halt at the bottom of that period, reporting almost exactly flat year-over-year comparisons in the first two quarters of 2023.
It's also true that Roku kept adding customers by the proverbial truckload even in the darkest days. Active accounts increased by 16.8% and 16.5% in those two reports of frozen top-line sales growth. Roku achieved this client growth in a period of penny-pinching personal budgets by taking a financial hit on behalf of its customers. While many rivals became a part of the inflation problem by raising prices to protect their profit margins, Roku held its software and hardware pricing firm instead.
That's the reason behind Roku's recent history on unprofitable operation. It was a voluntary gambit, and an effective one. Roku's customer count has grown 28.3% in the past two years and 49.4% since the end of 2021. And that's how you build a robust foundation for many years of profitable growth in the future.
How long will Roku's recovery take, then?
It will probably take more than just another year to get Roku's bottom-line profit back on track. But the low-cost gambit has ended, Roku raised its prices a bit in 2024, and the global economy should get back on its feet again someday.
Again, it's hard to tell exactly how the economic picture will play out amid armed conflicts, trade wars, and the renaming of international waterways. The Spanish Inquisition can pop up at any moment. Even so, I think it's fair to assume that Roku will be more profitable in 2025 as its advertising business evolves and the international expansion plans continue.
This little growth stock is going places, and I think it's very undervalued right now. I keep coming back to Roku stock every time I have some investable cash to spend.
