Roku (ROKU) stock has fallen 10.7% today to $143.75, 18.6% below its 52-week low. The streaming platform’s stock has fallen 16% over the last two days. Prior to this pullback, the stock was on a tear, gaining an astonishing 369% year-to-date after falling 38% last year. The stock has skyrocketed 475% since its IPO in September 2017.
Stock was trading at a premium
Investors are wary of overvalued stocks. Roku’s downward correction was overdue, as its stock was trading at a premium. The company is valued at $14.9 billion, 13.3x analysts’ 2019 sales estimate. Its price-to-sales ratio is 16.4x, and its price-to-book ratio is 36.3x.
High-growth stocks Shopify (SHOP) and Alteryx (AYX) are in a similar situation. Shopify is valued at $38.5 billion, 25x analysts’ 2019 sales estimate. SHOP’s price-to-sales and price-to-book ratios are 29.7x and 17.6x, respectively. Meanwhile, Alteryx is valued at $7.6 billion, 20x analysts’ 2019 sales forecast. AYX price-to-sales and price-to-book ratios are 24.6x and 22x. In the last three days, Shopify stock has fallen 14%, and Alteryx has fallen 20%.
Roku poised to be a winner
Though Roku is still unprofitable, investors are banking on its total addressable market for multifold returns. Roku leads the US streaming platform service space, with 37% of the market. It’s outperformed heavyweights such as Apple, Amazon, and Google.
Analysts expect Roku’s sales to grow 47.8% to $1.1 billion this year, and 36.3% to $1.5 billion in 2020. They expect its EPS to grow 20% annually over the next five years.
Analysts expect Roku to turn profitable by the end of 2021, and for its net margin to expand from -4.8% in 2019 to 3.7% in 2021. The transition to online streaming could drive Roku’s growth for several years. The stock could rise significantly if the company gains traction in international markets.
Furthermore, valued at $15 billion, Roku may be an attractive acquisition investment for any of the abovementioned tech giants. We’ve identified it as a stock to watch at major corrections. Roku has robust growth metrics, and its stock gives investors significant upside potential.