Although the market has been bouncing back in the past couple months and approaching its previous all-time high, not all companies are riding the wave. As of June 6, this growth stock is trading an eye-watering 84% below its peak, a record mark that was established in July 2021. At this point, maybe it's too hard to ignore the dip.
Should you buy shares in June and hold them for the next 20 years? Here are some important variables to think about.
Image source: Roku.
Riding two secular trends
The internet has helped to reshape industries, corporate strategy, and consumer behavior. This is evident in the rise of streaming entertainment. It also reveals itself when you look at the digital advertising market.
The business that benefits from both of these secular trends is Roku (ROKU +2.43%). It provides users with a single platform that allows them to aggregate all their content. At a time when it seems there's an unlimited number of streaming apps out there, it's extremely valuable to have them all in one place. As such, Roku has top market share among smart TV operating systems in the U.S., Mexico, and Canada. A whopping 40% of new TVs sold in the U.S. during the first quarter came equipped with Roku software.
You couldn't tell by the stock's weak performance, but this company continues to post double-digit growth. Revenue increased 16% in Q1 (ended March 31). This was after the top line expanded by 18% in 2024. At the end of last year, Roku counted 89.8 million memberships, although it has stopped reporting this key metric.
It's worth highlighting that 86% of the company's sales in the first quarter of 2025 came from its platform segment, which makes money partly from advertising. "With more than half of U.S. broadband households and our expanding ad product offering, we provide marketers the reach and visual impact of traditional TV with the performance of digital advertising," the latest shareholder letter reads.
Understanding the financial situation
In 2021, Roku generated $242 million in net income. That was a great year, but it was an anomaly. Roku has consistently reported net losses, to the tune of a cumulative $866 million in the past nine quarters. This could change, though, due to expense controls.
The leadership team expects to post positive operating income in 2026. As a scaled internet-enabled enterprise, Roku should be able to grow the bottom line as it scales up and increases revenue. Investors should pay close attention.
Roku had its initial public offering in 2017. So I can certainly understand the critical viewpoint; if the business hasn't yet become consistently profitable, then maybe it won't happen anytime soon. In other words, we could be looking at the true nature of the company's financial situation.
It helps that the company has a clean balance sheet. As of March 31, Roku had $2.3 billion in cash and cash equivalents. On the other hand, it had zero debt. This reduces the chance it runs into financial troubles.
NASDAQ: ROKU
Key Data Points
Valuation, risk, and time horizon
Because the stock has gotten crushed, the valuation is compelling. Shares trade at a price-to-sales ratio of 2.7. This is 69% below the stock's historical average. The current setup demonstrates just how much investors have soured on the business.
That valuation is attractive, no doubt. And I think it makes up for what I view as an important risk.
Investors can't ignore the competitive landscape. Big tech giants Alphabet, Amazon, and Apple all offer their own streaming apps and media hardware devices, putting them all head-to-head against Roku. This just means that Roku will have to remain focused on doing what's best strategically for its viewers and for its ad partners. So far, though, it has held its own in the industry.
It's difficult to say ahead of time that you should own a stock for 20 years. That's very far out into the future. However, Roku has the necessary ingredients to be a big winner. It has a cheap valuation, leading industry position, and meaningful growth potential. I believe investors who have a long time horizon should take a closer look at buying the stock.
