Since reporting financial results on Feb. 15, Roku (NASDAQ: ROKU) shares have fallen over 30%. Investors didn't want more tough times. They want rapid growth again. More terrifying is the overall picture. Currently, this streaming stock is 87% below its highest price. Some skeptics may think the current scenario warrants avoiding this business. I stay hopeful. Why Roku is still a great growth stock to purchase.
Losing interest Roku shares rose approximately 2,000% from its September 2017 IPO to July 2021's all-time high. The coronavirus pandemic prompted individuals to remain home and watch TV, which boosted the business's growth.
As consumer behavior adjusted, many internet-based tech companies saw a substantial slowdown in recent years. Roku's sales rose 13.1% in 2022 and 11.5% in 2023, down significantly from previous years.
Investor morale was also hurt by digital ad market difficulties. On the previous results call, management cited "challenges in the macro environment and an uneven ad market recovery." This may explain the news-induced stock slump. Alphabet, Meta Platforms, and Amazon are also growing. Roku stockholders may believe it has larger difficulties.
But the stock is inexpensive. Its price-to-sales ratio is 2.6. This is far below the historical average of 10. We're still not excited about this company's prospects.
Zoom out. Investors should look on the broad picture while the market sleeps on Roku due to weak near-term trends. Roku is one of the best ways to expose your portfolio to streaming entertainment.
The company sells smart TVs and technology that lets customers combine their favorite streaming shows and movies into one interface. That alone provides value due to the abundance of content. Seeing them together increases the viewing experience.
Since advertising revenues follow eyeballs, Roku's creator and CEO, Anthony Wood, created a platform for firms to target this streaming audience. In the last three months of 2023, 80 million Roku accounts viewed 29.1 billion hours of video. This gives advertisers lots of digital real estate.
Since Roku's platform division, which makes money from subscription and advertising deals, has a 55% gross margin, profitability should follow as it grows. Investors may not be as optimistic for 2024. Roku can enter a big runway. Nielsen reports that streaming services account for 36% of U.S. TV viewing. That penetration rate should rise.
This won't happen in the next quarter or two. Content consumption has changed in the entertainment business. Roku will benefit from streaming activities over years and decades. This means buying and holding the stock long-term is ideal.
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