Might the Post-Earnings Decline in Roku Stock Value Signify a Notable Purchase Chance for Investors?
Might the Post-Earnings Decline in Roku Stock Value Signify a Notable Purchase Chance for Investors?
When a company's share price drops after releasing quarterly results, it can sometimes be a smart move to buy. Sometimes, the initial sell-offs can turn into overreactions, so if the company's fundamentals are solid, buying at a lower price can lead to better returns in the future.
Streaming service provider Roku (ROKU -2.22%) saw its share price drop recently after releasing its third-quarter earnings report last week. Before the report, the share price was hovering around $80, but it closed at $65.61 last week. This leaves investors questioning why the stock has taken a downturn and whether now is a good time to invest in Roku.
Roku's financials show signs of improvement, but losses persist
On the positive side, Roku's losses in the most recent quarter were lower than analysts' expectations. The company reported a net loss per share of $0.06 for the quarter ending September 30, which is significantly lower than the $0.32 loss analysts were predicting. For the past few quarters, Roku's net loss has been decreasing and is consistently better than Wall Street's projections.
However, there is a concern over the company's guidance for the current quarter. Despite expecting a revenue of $1.1 billion, growing at a rate of around 16%, investors may not be impressed with how the business will achieve this growth rate.
Roku's business is split into two segments: devices and platform. The unprofitable devices segment is forecasted to grow by 25%, while platform revenue, which generates substantial gross profit margins, will only increase by 14%. If the platform segment grows at a much slower rate, this could have a negative impact on Roku's overall profitability.
Is Roku a good stock to buy at a discount?
As Roku is not currently making a profit, it's important to evaluate its value using its price-to-sales (P/S) ratio. Currently, it stands at around 2.5, which is lower than the average it has seen over the past five years.
While Roku looks like a much cheaper buy now than it has in the past, it's essential to keep a few things in mind. The past five years include the early stages of the pandemic, during which Roku's share price skyrocketed due to people spending more time at home.
Furthermore, Roku has transformed its business in recent years, with a focus on smart devices and the launch of its own TVs. While these strategies have boosted its top line, there are questions about whether this is the best path for the company to take, given its ongoing struggles to turn a profit.
Should you buy Roku stock now?
Roku is undoubtedly cheaper than it was a few weeks ago, but I believe it should be trading at an even more significant discount due to its lack of profitability and the potential negative impact of its unprofitable devices segment on its long-term profitability.
Additionally, there is the possibility that retail giant Walmart may succeed in its bid to purchase connected TV company Vizio. This could create additional challenges for Roku, given the headwinds it's already facing and the direction its business is moving in. As a result, Roku is not a stock I would recommend buying right now.
Given the context of the text, here are two sentences that contain the words 'investing', 'finance', and 'money':
- Despite Roku's current challenges in profitability, some investors might consider it as an opportunity for investing in the finance sector, as its price-to-sales ratio is lower than its average over the past five years.
- Analyzing Roku's financials, investors might find it intriguing to examine the potential impact of Walmart's bid to acquire Vizio on its financial standing and future growth, leading to crucial decisions in managing their money in this area of finance.