In a number of ways, Roku (ROKU +2.66%) has the makings of a market-beating growth stock.
The company is the leading streaming distribution platform in North America. When viewers in the U.S., Mexico, and Canada tune in to watch Netflix or another streaming service, they are more likely to use a Roku-enabled device than any other. This shows that the company has defended its market share against competition from big tech companies like Amazon, Alphabet, and Apple.
However, the stock's performance has clearly been underwhelming. After a surge during the pandemic shutdowns, Roku gave back all those gains in the 2022 bear market, and has essentially traded sideways during the bull market of the last two years, underperforming the market.
Roku has delivered consistent top-line growth, but it's been unable to convert that into profits, and the company is still losing money on a generally accepted accounting principles (GAAP) basis. However, one Wall Street analyst sees things turning up for Roku.
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Bank of America calls Roku a buy
Bank of America analyst Brent Navon reinstated coverage on Roku last Thursday with a buy rating and price target of $100, implying 28% upside to the stock. According to media reports, the bank believes the streaming platform is set to enter a new stage of operations. In fact, Roku did say that it expects to generate an operating profit in 2026.
NASDAQ: ROKU
Key Data Points
Is Roku a buy?
Roku's stock popped after its last earnings report, although it's given up most of those gains since then.
The company is showing progress toward profitability, and it continues to deliver solid growth. It grew streaming households by 12% over the past year to 89.8 million, and streaming hours rose 18% to 34.1 billion. Overall revenue rose 22% to $1.2 billion, although that was aided by the political advertising season.
Investors may be fed up with being patient with the stock, but Roku is moving in the right direction. If it can maintain its growth rate while achieving operating profit, the stock should hit $100 and beyond.
