Since peaking in mid-February, shares of Roku (ROKU) have retreated by 28%. Pullbacks amongst growth-oriented stocks have been a common theme this year. Sector rotation, inflation fears and worries of overstretched valuations have all been cited as reasons for the decline amongst previous high-flyers.
However, while Roku stock was an investor favorite last year and benefitted from the shift hastened by Covid-19 from linear TV to connected TV (CTV), the acceleration is one that is set to continue in the post-pandemic world.
As such, Wedbush’ Michael Pachter tells investors it’s time to follow one of the basic tenets in the investing rule book.
“While Roku’s share price is likely to remain volatile as expectations are high against a rich valuation,” the analyst said, “We think the recent pullback provides an attractive entry-point.”
Accordingly, Pachter upgraded Roku’s rating from Neutral (i.e., Hold) to Outperform (i.e., Buy). The $475 price target remains as is, suggesting upside of 38% over the coming months. (To watch Pachter’s track record, click here)
Pachter’s recommendation comes ahead of Roku’s 1Q21 earnings, which the company will report on Thursday (May 6 AMC).
Pachter expects Q1 revenue of $493 million – right at the high end of Roku’s guidance of between $478 and $493 million – and higher than the Street’s $491 million estimate. For the bottom-line, Pachter forecasts EPS of $(0.13), while consensus has $(0.15). “Our estimate implies that we anticipate net income will come in at the high-end of its guidance for $(23) – (16) million),” Pachter noted.
Looking deeper into FY21, the analyst anticipates “continued growth,” although notes there could be “moderate deceleration in 2H given tough comparisons” to last year’s Covid-driven giant strides forward.
That said, with the big picture in mind, Pachter believes the fact that most advertising still takes place on linear TV and will keep on heading in Roku’s direction means the pace of growth is “sustainable.” Moreover, Roku is only in the first innings of international expansion, which should fuel additional growth over the coming years.
So, that’s the Wedbush view, what does the rest of the Street have in mind for Roku? Most of Pachter’s colleagues agree. Based on 15 Buys vs. 4 Holds and 1 lone Sell, the stock has a Moderate Buy consensus rating. The average price target is only slightly higher than Pachter’s, and at $476.95, implies shares will appreciate by 39% in the year ahead. (See Roku stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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