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Should Investors Buy during the Roku Stock Rally?

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Roku (ROKU) stock has rallied 35.8% month-to-date, rising 16.7% this week alone. This rally comes after the stock fell around 40% in September due to fears of streaming wars with Disney (DIS) and Apple (AAPL) set to launch streaming services in November. Strong reactions are common for growth stocks like Roku, which is overvalued. Fears are now easing and investors are reacting to positive news on Roku.

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Apple TV on Roku’s platform

On October 15, Roku stock rose 11.5% after the company announced the addition of Apple TV+ on the Roku platform. Roku plans to start offering the streaming service, and Disney+, on November 1 and 12, respectively. The services’ addition could boost Roku’s platform revenue, which accounts for 67% of its total revenue.

One line in Netflix’s earnings sent Roku stock up 5%

Yesterday, Roku stock rose 5% after Netflix (NFLX) reported a rebound in international subscriber growth. In its third quarter, Netflix’s international paid net additions increased year-over-year to 6.3 million from 5.1 million. This growth was slightly higher than its guidance of 6.2 million. Roku is expanding in international markets, and an increase in Netflix’s international base reinforces investor confidence in Roku’s expansion efforts.

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Roku’s third-quarter results due on November 6

Roku is set to release its third-quarter earnings on November 6. The stock jumped over 20% a day after the company released its second-quarter results on August 7. In Q2, its revenue of $250 million beat analysts’ estimate of $244 million by 11%. Roku stock rallied for a month, reaching new highs. Its relative strength index score hovered around 70 for the entire month, suggesting it was overbought. The stock saw some selling activity in September as fears of streaming wars loomed.

Analysts optimistic on Roku stock

Analysts, once again bullish on Roku stock, are raising their price targets. In the third quarter, they expect Roku to report revenue of $255.5 million, higher than the company’s guidance of $250 million–$255 million.

On October 9, CNBC reported Macquarie analyst Tim Nollen expects Roku’s user base to rise threefold to 72 million by 2022 thanks to the company’s international expansion. At the end of the second quarter, the company’s active user base stood at 30.5 million.

Nollen said, “We know little about the international roll-out plans, or costs beyond this year, which we assume will rise as marketing demands emerge.” He added, “Roku’s growth trajectory internationally could well echo that of Netflix’s, which has also tripled over the past 3 years.”

On October 11, RBC Capital Markets analyst Mark Mahaney raised Roku’s price target from $107 to $155. According to MarketWatch, Mahaney expects Roku’s revenue to rise 46% in the third quarter, driven by TV advertising and new streaming services.

Should investors buy during Roku stock’s rally?

Roku stock is currently trading at $139. Investors who followed our tip and bought the stock in September’s dip are already benefiting. And it may not be too late, as the stock is still trading 21% below its all-time high of $176.55. Roku stock could even reach a new high when it reports its third-quarter results.

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