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Roku Is A Buy Again

Apr. 06, 2018 4:51 PM ETRoku, Inc. (ROKU)NFLX24 Comments
Bill Maurer profile picture
Bill Maurer
34.28K Followers

Summary

  • Stock past key lockup expiration.
  • Valuation much better at these levels.
  • Short squeeze potential remains.

One month ago, I detailed how the biggest hurdle for Roku (NASDAQ:ROKU) was coming in just a few weeks. The last week of March was when the 180-day IPO lockup expiration date was coming, and this could potentially lead to a large number of insider sales. Now that we've past that time period and shares have taken another leg down, it seems like a good time for investors to get back into the name.

While we have seen some insider sales after the lockup expired, there haven't been any so far from the CEO and founder Anthony Wood, which is a positive in my opinion. We have seen some distributions from funds to their partners, but that happens quite often. We also have not heard any big news from major holders that they are giving up on the name. There will be dilution coming, but this is a risk that's been on the table all along.

The second reason why I'm more positive now is valuation. In my original article on the name, I argued why Roku could eventually be worth between $4.25 billion and $8.5 billion. That was based on Roku being valued at 5-10% of Netflix (NFLX) at $85 billion, and now the streaming giant is worth more than $127 billion. While Roku shot up dramatically after its first earnings report, it has lost nearly half of its value since the peak. With a market cap under $3.1 billion on Friday afternoon, my valuation for the name, even if I don't adjust for Netflix's surge, again represents considerable upside.

(Source: Yahoo! Finance)

The growth story is still intact, as evidenced by the latest earnings report. Platform revenues are surging, which helps gross margins increase as they become a larger part of the overall total. The company actually reported a GAAP

This article was written by

Bill Maurer profile picture
34.28K Followers
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ROKU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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