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.
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.