Roku Stock is Undervalued with a Strong Top-Line Growth Rate

ROKU is down over 80% from its 52-week high

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Roku, Inc. (NASDAQ:ROKU) is an American company that manufactures a variety of digital media players for video streaming. ROKU also operates an advertising business and license their hardware and software to other companies. The media company’s streaming players and TV-related audio devices are available in the U.S. and other countries through direct retail sales and licensing arrangements with service operators. At last check, ROKU is trading up 2% at $91.31.

Roku stock has tanked over the past year, currently down about 73% year-over-year, and down 82% since peaking at a 52-week high of $490.76 last July. Additionally, shares of ROKU have dropped 63% year-to-date and are down by 11% over the past month. Nonetheless, Roku stock has recovered 16% since bottoming at a 52-week low of $75.03 at the end of May

Furthermore, Roku's business holds a solid balance sheet with $2.24 billion in cash and $576.04 million, allowing them to continue expanding without worrying about their net losses in the short-term. Still, ROKU is expected to be unprofitable throughout 2022 and for 2023. Roku is estimated to report an EPS (earnings per share) of -$1.56 for fiscal 2022, which would indicate a $3.27 decrease in earnings. However, ROKU is also estimated to report an EPS of -$0.51, which would indicate a $1.05 increase in earnings.

In addition, Roku stock offers an opportunity for growth investors to pick up shares at a price-sales ratio of 4.53, which is an attractive valuation considering their strong top-line growth rate.

The security could stumble further, though, if a shift in sentiment hits the options pits, which lean bullish at the moment. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.57 sits at the lowest percentile of readings from the past year, pointing to a call-bias amongst short-term options traders. 

Short interest has jumped 27% during the past two reporting periods, and now accounts for more than 7% of the stock's total available float. At the equity's average pace of daily trading, it would take shorts less than two days to buy back their bearish bets.

Lastly,  it looks like ROKU has often outperformed volatility expectations. This is per its Schaeffer's Volatility Scorecard (SVS) ranking of 88 out of 100.

 

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