Buy Or Sell Roku Stock After 28% Rally?

Core Insights - Roku's stock has surged approximately 28% in the last month due to analyst upgrades and better-than-expected Q1 2025 results, with revenue growing 16% year-over-year to $1.02 billion [2] - The company reaffirmed its full-year revenue forecast of $3.95 billion, contrasting with many firms retracting guidance amid macroeconomic challenges [2] - Streaming hours increased by 14% year-over-year to 35.8 billion, indicating rising viewer engagement as users shift from traditional TV to streaming [2] Financial Performance - Roku's revenue has shown significant growth, with a 17.3% increase from $3.6 billion to $4.3 billion over the last 12 months, compared to a 5.5% growth for the S&P 500 [7] - The company's quarterly revenues rose by 15.8% to $1.0 billion from $881 million a year prior, while the S&P 500 saw a 4.8% increase [7] - Operating income over the past four quarters was -$204 million, reflecting an operating margin of -4.8%, significantly lower than the S&P 500's 13.2% [12] Profitability and Valuation - Roku's profit margins are notably lower than most companies in the Trefis coverage universe, with a net income margin of -2.5% compared to 11.6% for the S&P 500 [12] - The price-to-sales (P/S) ratio for Roku is 2.6, compared to 3.0 for the S&P 500, indicating a relatively attractive valuation on a revenue basis [7][10] - The price-to-free cash flow (P/FCF) ratio stands at 35.3 versus 20.5 for the S&P 500, suggesting higher valuation concerns in terms of cash flow [7] Financial Stability - Roku's balance sheet appears strong, with a debt of $577 million against a market capitalization of $11 billion, resulting in a favorable debt-to-equity ratio of 5.3% [12] - Cash and cash equivalents amount to $2.3 billion, constituting 54.0% of total assets of $4.2 billion, which is significantly higher than the S&P 500's 13.8% [12] Market Performance - Roku's stock has experienced a significant decline of 91.9% from its peak of $479.50 in July 2021 to $38.80 in December 2022, while the S&P 500 saw a peak-to-trough drop of 25.4% [13] - The stock has not yet recovered to its pre-crisis high, with the highest price since then being $106.87 in November 2023, currently trading around $79 [13]