Sign InRoku's Resilience and Strategic Partnerships Spark Investor Interest, But Risks Remain
Summary
Despite concerns over declining revenue per user and profit margins, Roku's shares surged after defying Wall Street's predictions, drawing attention for its resilience and strategic partnerships, and with a disparity between its discounted cash flow figure and last closing price, along with bullish technical indicators, a cautiously optimistic stance towards the stock is warranted. (August 2, 2023)
Fundamental Analysis
Roku, Inc., listed under the NASDAQ with the ticker "ROKU", is a company well-known in the digital media and streaming industry. Having previously faced a severe downturn, the company's shares witnessed a surge after defying Wall Street's predictions in its recent financial reports. Despite lingering concerns over Roku's declining revenue per user and profit margins, Roku draws attention for its resilience and strategic partnerships, notably with Shopify.
The company's earnings per share (EPS) stands at -$4.78, indicating that the firm is not currently profitable. With a negative price-to-earnings (PE) ratio of -19.09, the market reveals its bearish sentiment towards this loss-bearing company. However, it must also be noted that such valuations could be characteristic of companies in growth stages investing heavily for future expansion.
The company's market capitalization is approximately $12.85 billion and the shares outstanding are approximately 140.78 million. The average trading volume is about 8.18 million, whereas the trading volume on Roku's last trading day was 12.19 million, indicating an increase in investor interest.
Roku's year low was $38.26, and year high was $98.44. It closed last at $91.25 on August 2, 2023 with a drop of $6.24 or -6.40%. A common element of volatility is evident, considering the high-low spectrum within the year and the meaningful price changes on the last trading day.
Roku's discounted cash flow (DCF) is at $105.50, which when compared to its last closing price of $91.25, suggests that the stock could be undervalued assuming that the underlying DCF assumptions were robust.
In answering the "Buy, Sell or Hold" question, we reference the price target consensus which stands at $152.74, the target high of $485 and low of $30, a broad range that underscores varying levels of confidence among analysts. The median target price is $80, marginally lower than the last close, pointing to a lack of consensus in analyst sentiment.
Technical Analysis
Notwithstanding the intraday price volatility, Roku's technical indicators present a mixed picture. The 14-days Relative Strength Index (RSI) score of 64 leans towards the overbought territory, possibly due to the recent bullish sentiment fueled by positive news.
As for moving averages, the 50-day and 200-day moving averages stand at $68.06 and $58.99 respectively. Given that the most recent close of $91.25 is well above both averages, Roku's stock is technically in an uptrend.
The Moving Average Convergence Divergence (MACD) value at 5.08, being positive, signals bullishness.
Final Evaluation
Given the disparity between the stock's discounted cash flow (DCF) figure and its last closing price, and the stock's current bullish technical indicators (above the moving averages and positive MACD), a cautiously optimistic stance is warranted. Balancing technical signals with fundamental indicators and forward-looking estimates, the recommendation leans towards a "buy". However, potential investors should monitor the inherent risks in Roku's unprofitability and the variability in analyst price targets and swing trends.
