Media-streaming technology expert Roku (NASDAQ: ROKU) isn’t getting any love from Wall Street. The stock is down 28% year to date, continuing a downtrend that started in the summer of 2021.
Roku’s market moves have been so brutal, you’d think it was a company on the verge of bankruptcy. But nothing could be further from the truth.
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Roku is thriving with robust sales growth, improving profit margins, and strong cash flow. Furthermore, this incredible growth stock stands at the threshold of an online advertising recovery, and I can’t wait to see the next couple of years play out.
The inflation panic of 2022 hit “pause” on Roku’s business growth for a while, but the company is back to full-throated gains. The same crisis also undermined Roku’s profit margins, and that trend line is also pointing sharply upward now.
Net margins should rise above the breakeven line in the upcoming holiday quarter, at least on a single-quarter basis. From there, I expect continued sales growth and sustainable bottom-line profits in 2025.
But market makers don’t seem to care about the positive business trends. Roku’s stock fell from $313 to $66 in the chart above, and you already saw the year-to-date drop. Did I mention that the company beat analyst expectations across the board by consistently wide margins all year long? I mean, sometimes you wonder what it would take to sync Roku’s limp stock chart with its flourishing business results.
I can’t promise a quick price surge, but I do expect Roku to gain some respect in 2025.
The ongoing fourth quarter will benefit from generous political ad spending in early November, plus the evolution of a fresh ad-buying partnership with The Trade Desk (NASDAQ: TTD) and a forceful marketing push for Roku’s own products and services. This activity is taking place in a stabilizing economy as the U.S. Federal Reserve has started to cut inflation-fighting interest rates. As a result, consumers in America and around the world should have more room for holiday spending.
Those catalyst-making building blocks are obviously good for Roku in a direct sense since the company would benefit from robust smart-TV sales this December.
However, that’s not the only positive result — or even the most important one. Ad buyers have been waiting for a healthier economy so they can get back to promoting their stuff. Naturally, advertising budgets should shrink when people aren’t ready to buy what you’re selling. On the rebound from a two-year downturn, Roku has established itself as an effective marketing platform where those ad dollars can make a strong impact.
