Are you looking for some growth but only have enough cash to buy one stock right now? There are several solid options to choose from at this time. There are none, however, arguably as compelling as Roku (ROKU 1.69%) at its current price.
You read that right. Shares of this unprofitable company have been stagnant for years, but they could be a great buy right now. And the longer you're willing to hold on to the stock, the better. Here's why.
What's wrong with Roku?
You probably know Roku as the company that makes your TV or streaming device, which allow consumers to access all of their streaming subscriptions. And that's a fair description.
It understates the $13 billion company's actual presence though. Roku is the leading name in connected television in the U.S. and Canada. Industry research outfit Pixalate reports Roku's U.S. market share stood at 37% for the second quarter of this year, trouncing the 17% share of its next-closest competitor, Amazon. Simultaneously, Roku's own streaming channel garners almost as much viewing time in the United States as Amazon Prime Video, and a little more than Tubi or Paramount+, according to data from TV ratings agency Nielsen.
Leadership of one aspect of the streaming market and a strong presence in the other hasn't helped the stock in recent years though. While this pioneer in streaming technology saw its stock surge during the early phases of the COVID-19 pandemic, the shares plunged during the 2022 bear market and have yet to recover.
In fact, shares are currently trading right around where they were three years ago. The market seems to be waiting for something -- probably profits -- and understandably so.
As veteran investors can attest, however, waiting for an investment to become an obvious low-risk proposition often ends up meaning you've waited too long. The market has a way of sensing and pricing in progress. Remaining on the sidelines will likely mean missing out on the lion's share of any gains in the works.
And sizable gains seem more likely than not here.
A tailwind is blowing
It's no secret that the streaming business is changing. As it matures, investors are growing weary of continued losses in the name of growth. Now, the industry's key players are teaming up as a means of culling costs and adding much-needed revenue. Entertainment media giant Walt Disney's Hulu, for instance, is being folded into Disney+, while Disney's ESPN is being bundled with content from Fox to offer a robust sports-centric package. This is the new norm for much of the industry.
Image source: Getty Images.
It doesn't change Roku's opportunity though. Indeed, if anything, it enhances it by giving consumers even more reason to cancel their cable TV service, which they were already doing at a pretty brisk pace anyway. To put it in perspective, Comcast's Xfinity lost another 325,000 cable customers last quarter, bringing its headcount down to just under 11.8 million. Charter and Altice have reported similar levels of attrition.
Roku's position as North America's leading streaming platform is a powerful one. If powerhouses like Disney or Amazon want to offer or promote their services to consumers through Roku's ecosystem, they must pay Roku to do so. In the meantime, the company's also selling its own ad space. All told, Roku's advertising and partnership revenue improved 18% year over year to $975.5 million last quarter (versus device revenue of only $135.6 million), extending a long-established trend.
Data source: Roku Inc. Chart by author. All values in millions.
There's more where that came from too.
While creating and selling streaming content hasn't exactly been as profitable as most of the industry's players were hoping it would have been by now, the business itself is still growing. Global Market Insights believes the worldwide streaming market will grow at an annualized pace of 11% through 2032, jibing with slightly more aggressive outlooks from Precedence Research and Imarc Group. And like Precedence, Global Market Insights expects this growth to remain led by the North American market where Roku is already well-established.
Turning the profit corner
As for the company's continued losses, they've been disappointing to shareholders, but they may not last that much longer. The analyst community is calling for a significant swing to profitability next year, extending this year's progress on the bottom line.
Data source: StockAnalysis.com. Chart by author.
It appears Roku's sizable investments are leveling off while the growth they're generating is not. As CFO Dan Jedda explained during the Q2 earnings call:
So you can see from our full-year guide, our EBITDA margin outlook reflects a 480 basis point improvement year over year over 2024. We expect to see further margin improvement in 2026. And while we continue to carefully balance our investment in our Platform growth with our margin expansion, we're also focused on operational efficiency. And we expect 2026 [operating expense] growth rate and Platform margins to stay relatively in line with 2025.
Be willing to leave (or even lead) the crowd
If you're wondering why none of this promising tailwind appears to be getting priced into the stock, just remember the market may know everything there is to know about a company, but that doesn't mean it knows the right thing to do with that information. Many investors may be so fixated on Roku's historic losses or the stock's disappointing performance that they do not see how its prospects will improve going forward.
You don't have to fall into that same trap. A company's results are eventually reflected in its stock, and often times, they begin reflecting it before those expected results become reality.
In other words, don't be surprised if Roku shares take off sooner than later once more investors recognize what's really happening here. If you look closely at the stock's chart, in fact, it looks like a few bulls may already be testing the waters.
