Roku (NASDAQ:ROKU) stock is more volatile than the average NASDAQ stock.
If you’ve been in it since the September 2017 IPO, you’re up 272%, but if you have been in it for just a year, you’re down 81%.
Roku was early in the streaming excitement, but as competition from Amazon.Com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) has intensified, shares have come down hard.
Roku stock is still not cheap. The market cap of $13.4 billion is still nearly five times last year’s $2.7 billion in revenue. The price-to-earnings multiple is nearly 100. You’re still speculating. The question is whether the time is right to take another plunge.
A Closer Look at ROKU Stock
Roku began as a streaming hardware company. Then it became an advertising company. Now it may become an e-commerce company.
A recent deal with Walmart (NYSE:WMT) shows what’s possible. The idea is that a product offer is overlaid on a Roku ad, and people can buy it by simply pausing the program and pressing the OK button on their remote.
Roku’s OneView platform will measure the ads’ performance. Credit cards are already maintained by Roku for streaming services. Roku’s Brand Studio will create the ads. It’s all ready for other merchants if there’s any success. Shares jumped on the news.
Roku is also continuing to expand its offerings, especially in the fast-growing Hispanic market. Its own Roku Channel programs are drawing audiences and it has production facilities for its own shows and ads.
Another reason to buy Roku stock is that it might be bought.
Netflix (NASDAQ:NFLX) was seen kicking the tires on it in the last month. As the only independent streaming hardware company, and one of the few independent streamers, a single bid for Roku could easily launch a bidding war.
There are potential buyers on both the hardware and streaming side. In addition to Netflix and Walmart, Walt Disney (NYSE:DIS) might be interested. So, too, might Comcast (NASDAQ:CMCSA), which was looking at it last year.
This might be the last chance for Warner Brothers Discovery (NASDAQ:WBD) to diversify and stay independent.
Competition is a growing issue. Google, Amazon, and Apple can out-bid anyone for programs. They all offer direct competition with Roku hardware.
Roku is also angering its content providers. Giving Roku 45% of net ad revenues and being required to use both its Content Delivery Network (CDN) and ad insertion technology, isn’t sitting well. The new boss looks a lot like the old boss.
If you see inflation and high-interest rates landing us into a recession, you may also question Roku’s ability to compete.
The company had just $2.2 billion in cash on its books at the end of March. Roku lost money last quarter as revenue went into reverse after years of hyper-growth. Another loss is expected for the June quarter, with revenues just 10% higher than in March.
The Bottom Line
No one will buy Roku until you pry it from founder and CEO Anthony Wood’s hands. He sold shares near the top but still controls the Class B shares holding voting power.
Right now, he doesn’t seem interested in that final transaction. But if Roku results are pressed further, that could change. This creates a floor under Roku’s value.
Meanwhile, Roku stock is at its most attractive valuation in years. If you can handle the risk, the potential reward is there. It remains a good speculation for a young investor.
On the date of publication, Dana Blankenhorn held a long position in AAPL, GOOGL and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.