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Roku stock is well poised to deliver outsized gains in 2021

Roku stock is well poised to deliver outsized gains in 2021

If you invest in equities, you would ideally want to buy stocks that outperform the broader markets. Growth stocks are generally a good option as they deliver market-thumping gains in a bull run. Alternatively, they grossly underperform indexes when markets turn bearish. 

But if you have a quality growth stock in your portfolio, it should allow you to increase your wealth multi-fold over the long term. One such stock is streaming company Roku (NASDAQ: ROKU). 

Roku stock proce performance. data.

What does Roku do?

Roku is a streaming platform that connects the entire TV ecosystem of viewers, content publishers, and advertisers. Its TV streaming platform connects consumers with entertainment while enabling content publishers to build and monetize large audiences. 

It also provide advertisers with capabilities to engage consumers. The company’s operating system is purpose-built for TV and runs on low-cost hardware that allows Roku to manufacture and sell affordable streaming players. 

Roku’s Platform business allows users to access content, and the company ended 2020 with 51.2 million active accounts. Under this segment, Roku also provides digital and video advertising, content distribution, subscription, and billing services.

Impressive Q1 results

In the first quarter of 2021, Roku’s total sales were up 79% year-over-year at $574.2 million. The number of active accounts rose 35% to 53.6 million, while average revenue per user also increased by 32% to $32.14. While Platform sales more than doubled to $466.5 million, Player sales were more subdued and rose 22% in Q1 to $107.7 million. 

These stellar growth rates allowed Roku to report an adjusted EBITDA of $125.9 million in the March quarter, compared to an EBITDA loss of $16.3 million in the prior-year quarter.

The company should continue to benefit from high operating leverage in the future, improving profit margins. Its operating expenses rose by 28% in Q1 compared to much higher growth in the top-line. 

Wall Street expects Roku to increase sales by 54.6% to $.275 billion in 2021 and 38% to $3.78 billion in 2022. This will improve the bottom line from a loss per share of $0.14 in 2020 to earnings per share of $1.00 in 2022. 

The bottom line

The COVID-19 pandemic acted as a massive tailwind for streaming companies, including Roku. As the economy opens up and normalcy returns, investors should expect revenue growth to decelerate in the upcoming quarters. 

However, Roku is part of the rapidly expanding addressable streaming market and has partnered with top streaming platforms globally. Its robust business model, widening profit margins, and remarkable revenue growth estimates make a stock you need to keep an eye on in 2021 and beyond. 

Analysts tracking the stock have a 12-month average target price of $442 for Roku. It means Roku stock is trading at a discount of 34% to consensus estimates. As seen in the above chart, Roku shares have already gained a staggering 1,300% since they went public in late 2017. 

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