Roku Inc (ROKU, Financial) has recently experienced a notable daily gain of 8.48%, complemented by a robust 3-month gain of 33.83%. Despite these promising figures, the company faces a Loss Per Share of $6.17. Investors and analysts are keen to determine: is Roku (ROKU) modestly undervalued? This article delves into a valuation analysis to explore this question and provides insights into the company's financial health and market potential.
Company Introduction
Roku is the leading streaming platform in the U.S., boasting 87.4 billion hours of content streamed in 2022. The versatile Roku operating system powers not only Roku's hardware but also devices from manufacturers like TCL, Onn, and Hisense. With a diverse revenue stream from advertising, distribution fees, hardware sales, OS licensing, and subscription sales, Roku has established a formidable presence in the media industry. The current stock price of $102.98, when compared to the GF Value of $115.29, suggests that Roku may indeed be modestly undervalued, offering a potential investment opportunity.
Summarize GF Value
The GF Value is a unique measure that estimates the intrinsic value of a stock, taking into account historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. Roku (ROKU, Financial)'s current price suggests that the stock may be modestly undervalued, providing a potential advantage for long-term investors seeking higher returns than the company's business growth alone might suggest.
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Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. Roku's cash-to-debt ratio of 3.02 surpasses 63.65% of its peers in the Media - Diversified industry, reflecting a fair financial condition with a GuruFocus financial strength rating of 6 out of 10.
Profitability and Growth
Profitable companies, especially those with a track record of consistent profitability, pose lower investment risks. However, Roku's operating margin of -27.86% indicates challenges, ranking lower than 83.9% of the industry. Despite this, Roku's 3-year average annual revenue growth rate of 32.3% outperforms 93.09% of its industry peers, showcasing significant growth potential.
ROIC vs WACC
An analysis of Return on Invested Capital (ROIC) versus the Weighted Average Cost of Capital (WACC) can provide insight into a company's profitability relative to its capital costs. For Roku, the ROIC of -58.82 is substantially lower than its WACC of 15.4, indicating profitability concerns.
Conclusion
Roku (ROKU, Financial) appears modestly undervalued, suggesting potential for future growth in stock value. Despite fair financial health, the company's profitability is poor, and its growth is below average within the Media - Diversified industry. For a deeper understanding of Roku's financial journey, investors can explore the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
