Roku Stock Fell Close to 7.0% Yesterday


Jun. 26 2019, Updated 4:56 p.m. ET

Roku stock returns

Roku stock fell 6.8% yesterday to close trading at $93.25 per share. Roku stock has lost over 9.0% in market value in the last two trading days. Prior to this pullback, Roku stock was up by a whopping 235.0% year-to-date. The stock has now climbed 204.0% this year. So it’s understandable why Roku shares have corrected. The stock was overvalued after its stellar run.

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Competition from AmazonFeature

Roku stock was down after news emerged that Amazon (AMZN) is all set to launch three new HDR smart TVs in partnership with Toshiba. The low-cost TVs will be in direct competition with TCL’s Roku TV. According to this report, the 55-inch TV will cost $449.99, while the 50-inch TV costs $379.99 and the 43-inch TV costs $329.99.

Exposure to the tariff war

While Roku generates 100.0% of its sales in the United States, it is exposed to the tariff war between China and the United States. Roku has a manufacturing unit in China and will be hit by higher prices if the dispute continues to escalate. This will impact profit margins for Roku, which is already posting a non-GAAP loss.

Roku stock is trading 14.0% below its 52-week high of $108.32 and might slide further driven by trade war uncertainty. Roku is valued at 10.8x its 2019 sales, which is generally the case with high growth companies that command a premium valuation.

Roku’s growth story is still intact. The short-term weakness might drive the stock lower, but it remains a solid pick for the long-term investor. Roku shares are still trading at a premium of 15.0% to the median target analyst estimates.


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