Roku (ROKU), which is one of the world’s largest online media players, has grown at a breakneck pace over the past half a decade. Much of Roku’s growth is due to the expansion of online streaming. It is one of the most popular services in the world and it had grown at a much faster clip over the course of 2019 so far.
ROKU Stock Gains 210% So Far In 2019
From the beginning of the year up until last Friday, ROKU stock has surged by as much as 210% and has outperformed the growth in the S&P 500 index which has gained by only 13%. Moreover, the stock made an all-time of $95.10 in Friday’s session.
The primary reason behind the remarkable upsurge has been the growth in the number of users in addition to rising streaming hours and income from each user. However, despite the hyper growth in the company and the stock, ROKU stock went down by as much as 6% in Tuesday’s session. Due to that fall, old worries about the company having grown too fast have resurfaced and there is a compelling case to be made.
Stephens’ Analyst Downgrades to Overweight
An analyst at Stephens named Kyle Evans has stated in a note that the company may have grown too fast and that could create risks for investors in the near term.
The note in question was written by Evans on Tuesday and he stated, “We believe the recent run and higher valuation … combined with raised expectations … creates increased [near term] risk.” He did not lower his 12-month target price of $84 but changed the rating for the stock to overweight from equal weight. Following the drop on Tuesday, the shares were trading at $90.
The analyst stated that the recent rally in the stock may have been impressive but even last year, the stock had nosedived after reporting its earnings for the third quarter. At the time, it went down by as much as 22% and the reason for the decline was the disappointing platform revenue.
Hence, a case is being made that the dizzying highs could just as easily trigger a big selloff if the company underperforms in any of the quarters.