Roku's 233% rally in 2019 faces a big test this week

Reports Q2 2019 results on Wednesday, August 7 after the close

Income expectation: $ 223.86 million

For investors looking for a high octane level, shares of Roku (NASDAQ 🙂 have proven a great gamble this year. They have so far risen by 233%, defying trade tensions, macroeconomic headwinds and the overall volatile trading environment for technology stocks.

But that remarkable rally can be threatened when the video streaming platform releases the second quarter on Wednesday after the market has closed. The shares have fallen in the past 3 sessions and ended 0.3% lower at $ 100.53 on Friday.

Roku is expected to report an adjusted loss of approximately $ 0.23 per share on sales of approximately $ 224 million, which would represent sales growth of more than 43%. Roku, which was made public in 2017, sells devices that allow users to stream video on their televisions. It also sells ads on the Roku channel and allows TV networks to sell spots that target a specific audience.

Over the years, Roku has seen explosive growth as a technical platform that is pre-loaded on certain TVs. According to Bloomberg data, 10 of the 20 most sold TV & # 39; s on Amazon TV & # 39; s are connected to Roku. To add depth to its revenue base, Roku also sells advertisements for its free streaming product called The Roku Channel, which offers a variety of network and other TV shows and entertainment.

Major Boost

A big boost that many analysts see for Roku is that large media giants such as Disney (NYSE 🙂 and AT&T (NYSE 🙂 are preparing to launch their own streaming services and these additions are likely to increase the demand for Roku & # 39. ; s products and services.

The stock has been volatile since the market debut in 2017. The price rose more than 40% in the first nine months of 2018, before the year ended with the same amount. And so far, by 2019, Roku has more than tripled in value and outperformed almost all other technology stocks.

But after this remarkable rally, there are reasons to be careful with Roku. The shares trade around 14 times their turnover. That's elevated even by technical stock standards: (NASDAQ :), for example, trades with around 3.5 times revenue, while Apple (NASDAQ 🙂 trades with 3.56 times revenue.

On these points, RBC Capital Markets lowered Roku to sector performance in July, citing valuations that have become "less attractive" after the strong progress this year.

Currently, seven analysts recommend Roku, while another seven, according to Bloomberg, have a hold rating on the shares. Two companies have ratings for sales, while the average target price of $ 84 amounts to a disadvantage of around 16%.

Bottom Line

There is nothing wrong with Roku's business model. This company remains a major potential growth story in its niche market, which is exploding as more and more people cut wires and switch to video streaming services.

That said, the stock becomes vulnerable in the short term and must be avoided. Especially before earnings, which is generally quite volatile for its shares: Roku shares have increased by more than 20% after each of the last four reports.

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