Skip to content
Why Roku Stock is a Strong Buy


Source: JHVEPhoto / Shutterstock.com

Roku (NASDAQ:ROKU) released positive first quarter results that show the company continues to grow rapidly, while its longer-term outlook remains extremely attractive. Given these points, I remain very bullish on ROKU stock and continue to strongly recommend investors buy the stock.

Strong first quarter results for Roku stock

Roku added 1.2 million robust users last quarter, while its average revenue per user climbed 33.5% year over year, Looking for Alphanoted columnist Andrei Ovidiu Gheorghe recently. According to Gheorghe, both measures are above the average analyst outlook.

Meanwhile, the company’s revenue climbed 28% year-on-year to $734 million, above analysts’ average estimate of $719 million. And despite the impact of the reopening of economies, as well as supply chain issues that reduced the number of TVs consumers could buy, Roku managed to grow active accounts by 2% from the previous quarter and increase the total number of these accounts by 14% year-on-year. .

In contrast, the company’s EBITDA fell 54% year-over-year to $57.6 million. But from an EBITDA perspective, the company remains in the black and improving supply chain conditions should boost the company’s margins in the long run.

Also, as I’ve noted in the past, Roku ramps up its investment at this point, and many tech companies need to take such a step for a few quarters to compete effectively in future years. Over time, however, I’m confident Roku’s profitability will improve dramatically.

Roku’s overall outlook is positive

Streaming continues to take market share from the TV market and, as I noted in my previous column on ROKU stock, the company is one of the biggest players in the streaming industry in the United States and the world. Quote NielsenGheorghe reports that:

“For the first time, TV streaming devices have overtaken legacy pay-TV devices (Set-Top-Box and DVR) in weekly reach in the United States, with 65% of adults aged 18-49 stream TV vs. 63% who watch traditional pay TV in the U.S. March.”

Meanwhile, motley fool Columnist Parkev Tatevosian said that “Roku retained 96% of marketers who spent more than $1 million on the platform, and average spend for this group increased by more than 50%.”

As I’ve pointed out before, ad dollars eventually follow viewers, and we’re clearly seeing that trend play out with Roku. Over time, this trend will dramatically increase Roku’s results.

And on the valuation front, Roku is now trading at an attractive price of 3.8 times sales, based on analysts’ average earnings estimate for 2022.

In summary, Roku’s business is booming, its long-term outlook is bright, and its valuation is attractive. Taken together, these points make ROKU stock a buy for investors.

As of the date of publication, Larry Ramer did not hold any position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Larry Ramer has researched and written about US stocks for 15 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Larry started writing columns for InvestorPlace in 2015. Some of his highly successful contrarian picks include GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer.

InvestorPlace

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.