Roku stock got hit hard on monday after a downgrade from institutional holder Morgan Stanley 5 star analyst Benjamin Swinburne has said that he still remains bullish on Roku but he says he doesn’t believe that the risks is built into the share price.
“We see the risk/reward skewed to the downside. Roku’s valuation levels have surged past digital media players and even past high-growth SaaS companies despite structurally lower gross margins,” Swinburne commented. Swinburne adds that it will be increasingly difficult to sustain the current premium as gross margins drop and gross profit growth moderates. To this end, the top-rated analyst lowered the rating to Underweight and set a $110 price target, indicating 20% downside potential from current levels.
On monday Roku shares plunged 15% after the downgrade of Swinburne, and the boards were full of Roku bears hating on the bulls. However this tuesday Laura Martin from Needham has upgraded Roku to a $200 from her original $150 price target. Causing Roku stock to go up 6% tuesday morning. Ofcourse this isn’t anywhere near the 15% drop a day earlier, but it is a good sign for Roku stock.
Laura Martin recommends people to buy the dip and take advantage of the massive sell-off a day earlier. “In 2020, Roku’s key upside valuation driver will be accelerating subscription [streaming-video-on-demand] revenues, which lowers investment risk, we believe,” she wrote. “Additionally, Disney+, Apple+, Peacock/CMCSA and HBOMax/AT&T should accelerate customer acquisition spending, and Roku is a key beneficiary owing to its installed base of 32 million US connected-TV homes.”
Personally i would also recommend people to take advantage of the dip, even today (wednesday). However I would warn investers to be careful with Roku stock. Roku has a track record of being volatile and reacting extremely to news. Especially negative news seems to have a big impact on the share prices of Roku stock. That being said, I personally think Roku is still a good investment. I will feature a more in depth analysis of Roku stock later.
At the time of writing, Roku opened on Wednesday 09:36am at +3,33%