The Unparalleled Potential of Roku as a Growth Investment The Unparalleled Potential of Roku as a Growth Investment

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By Ronald Tech

Investing involves weighing risk against potential gain, future promise against proven results, and stability against growth. Amid this balancing act, growth stocks stand out with the potential to outperform the market, making them an attractive option for investors looking to allocate a set amount, such as $1,000. At present, Roku ((NASDAQ: ROKU)) emerges as a widely underappreciated growth stock that warrants astute consideration in the current investment landscape.

Reasons Behind Roku’s Potential

Roku has established itself as a profitable long-term player in the rapidly expanding media streaming sector, which forms the bedrock of contemporary media consumption.

Originating as the division of Netflix producing the first video streaming set-top boxes, Roku remains a market-defining leader in 2024. Pixalate’s data analysts reported that devices running Roku’s streaming platform software accounted for 51% of the global connected TV (CTV) market in the third quarter of 2023.

Despite a few quarters of stagnation, Roku has resumed an upward trajectory in revenue generation. With fourth-quarter sales escalating by 14% year over year to $984 million, along with $176 million in free cash flow, Roku’s financial strength appears robust.

Furthermore, Roku continued to acquire new users, even during challenging economic conditions, adding 10 million net new active accounts over the past year, bringing the total to 80 million. Moreover, the platform witnessed a 21% surge in streaming hours over the same period, signifying both growth and enhanced user engagement.

In the foreseeable future, Roku aims to sustain its revenue growth and enhance free cash flows. The provided guidance indicates a focus on long-term profitability, which could offer reassurance to investors. Recent strategic initiatives, such as an aggressive cost-cutting program and minimal price increases amidst the inflationary environment, underscore Roku’s forward-looking approach.

Despite acknowledging the challenges stemming from macroeconomic instability and a rebounding ad market, Roku anticipates a year-over-year sales increase of approximately 20%, reaching around $850 million in 2024.

Riding the Long-Term Wave

Despite these robust financial indicators, Roku’s stock concluded the week with a 24% decline following its earnings release on Thursday evening. This seemingly illogical price drop reflects market volatility and investor sentiment. However, it also presents a potential hidden opportunity for astute investors.

The only justifiable reason to sell Roku shares currently would be to capitalize on recent price gains, as the stock closed Thursday’s trading session with a 132% increase from the end of 2022. However, relinquishing Roku shares at the current modest plateau could result in missed opportunities for future growth.

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For long-term investors, Roku’s strategy aligns well with industry trends. The shift towards digital media consumption represents a wave that Roku is well-positioned to ride. CEO Anthony Wood has often emphasized to investors that all media viewing and advertising will eventually shift to digital platforms, with Roku primed to capitalize on this fundamental evolution.

The recent price drop resembles the significant decline in Netflix shares in 2011, when the company transitioned its streaming service into a formidable business and phased out its old DVD-mailer segment. Roku’s stock depreciation following a robust earnings report and positive guidance stands in stark contrast to Netflix’s radical strategy shift. This suggests that Roku’s stock underwent a 24% correction without a sound basis.

In my estimation, Roku’s stock experienced a 24% slump without justifiable cause. Such instances often represent an opportunity for investors with $1,000 to invest in a resilient company at an advantageous valuation. If you are considering investing in a growth stock at the moment, Roku presents a compelling case.

Considering Roku with $1,000

With its strong fundamentals, clear growth trajectory, and market position reflecting resilience and adaptability, Roku emerges as a growth stock poised to deliver substantial returns over time. The journey ahead may exhibit bumps, but Roku’s business remains unwavering. Diligent research is crucial, as with any investment, but Roku’s recent performance and future prospects justify its inclusion in your investment portfolio.

For one, I plan to bolster my Roku investment as soon as I manage to stop writing about it long enough.

Before considering a $1,000 investment in Roku, take into account:

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Anders Bylund holds positions in Netflix and Roku. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool has a disclosure policy.