A Hidden Gem in the Streaming Industry
The S&P 500 has just wrapped up an impressive year, highlighting the benefits of investing in index-based exchange-traded funds (ETFs). However, the S&P 500 only tracks 500 companies out of thousands, and its constituents can perform much better or worse than the average. One such company is Roku, a popular stock and industry leader that isn’t part of the S&P 500. Despite the market’s strong performance in 2024, Roku’s stock ended the year down 19%. But there’s more to the story.
Roku’s Resilience
Roku has been growing its platform steadily, with both its device and platform businesses expanding at double-digit percentage rates. Although it faced some challenges in 2024, including Walmart’s acquisition of Vizio, a Roku competitor, the company remains the leading streaming platform operator in the U.S., Canada, and Mexico. Roku has also made significant progress on profitability, with five consecutive quarters of positive free cash flow and adjusted EBITDA.
A Path to Profitability
Roku’s focus on international expansion has led to a temporary stagnation in its average revenue per user (ARPU). However, as the company continues to add members in foreign markets, its ad business is expected to grow, driving revenue and profitability. With several catalysts on the horizon, including the rebound of the ad industry and Roku’s deal with The Trade Desk, the company is poised for growth.
A Potential Doubling in 2025
If Roku grows its top line by 16% in 2025, it will reach $4.5 billion in trailing 12-month revenue. With a price-to-sales ratio of 4, Roku’s market cap could reach $18 billion, almost 80% higher than its current value. While there are no guarantees, Roku’s lackluster stock performance in 2024 was largely due to short-term issues, and the company’s fundamentals suggest a strong potential for growth.
Before You Invest
While Roku’s prospects look promising, it’s essential to consider other investment opportunities. The Motley Fool Stock Advisor analyst team has identified 10 stocks that could produce exceptional returns in the coming years. These stocks have the potential to outperform the market, and investing in them could lead to significant gains.
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