Down 89%, Is It Time to Buy a Discount on This Growth Stock?

The Nasdaq CompositeIts double-digit rally since the start of 2024 has been a wonderful development for investors. But not all companies were so lucky to see significant gains.

Look at the streaming platform operator Roku (ROKU -1.16%). Despite being a beneficiary of a new trend in the media landscape, the stock is down 41% this year and 89% from its 2021 peak.

Time to buy this once-beloved a drink growth stock?

Improving every quarter

Like many pandemic-era darlings, Roku has faced a slowdown in the wake of the crisis. However, there is no reason for shareholders to panic. The last quarter provided another example of positive results.

Roku reported a 14% year-over-year revenue increase in Q2 (ended June 30) to $968.2 million. That total was above analysts’ expectations. Advertising growth on Roku remains better than the overall industry and streaming niche.

The business continues to show strength in some of its most important values. Roku now counts 83.6 million households as customers, adding 2 million new accounts last quarter. The streaming platform has the largest market share in the US, Canada and Mexico in the smart TV industry.

The involvement is also impressive. Households watched a staggering 30.1 billion hours of content on Roku in Q2. The fact that hours streamed grew at a faster rate than the growth in active accounts is also noteworthy, as it indicates an improvement in household engagement.

To be clear, though, Roku is consistently losing money. It posted an operating loss of $531 million in 2022 and $792 million in 2023. And in the first six months of this year, that loss was $143 million.

But the company is headed in the right direction. For comparison, Roku reported an operating loss of $338 million in the first six months of 2023. Additionally, the business produced positive free cash flow on a trailing 12-month basis.

A focus on controlling expenses, along with what appears to be a scalable business model, should hopefully lead to increased profits in the coming years. And that will be a clear sign that Roku is becoming a financially sound enterprise. For what it’s worth, the company is debt-free, with nearly $2.1 billion in cash and cash equivalents on its balance sheet.

Both sides of Roku’s story

Roku could be a good investment choice for those who want exposure to the streaming industry. In addition to the fundamental momentum I mentioned above, the company is in a prime position to benefit from the growth of streaming entertainment. It aims to be an agnostic platform that grows from the billions of dollars other companies spend on content.

Additionally, digital ad dollars still have a ways to go in terms of migrating from linear TV to connected TV. With many top streaming services acquiring rights to major sports leagues, perhaps marketers will start spending more to target a more engaged streaming audience. And Roku stands to gain from this.

The stock is very cheap today, trading at a the price-to-sales ratio of only 2.1. This is significantly below the historical average of 9.5. The market soured on this business, a negative perception that may not be justified.

Of course, not everything is rosy. Roku competes head to head with some of the most powerful titans of technology such as Apple, Amazonand Alphabetall with virtually unlimited financial resources and skills in the digital advertising space.

Additionally, a valid argument can be made that Roku’s platform needs top streaming apps such as Netflix, Disneyand YouTube, more than they need Roku. This lowers Roku’s bargaining power.

However, perhaps this risk is more than reflected in the stock’s low valuation. And investors might still decide to buy the dip.