blue-chip

Is it the right time to sell this US stock currently: Roku Inc?

Jul 27, 2021 | Team Kalkine
Is it the right time to sell this US stock currently: Roku Inc?

 

Roku Inc

Roku Inc (NASDAQ: ROKU) provides streaming content to the TV in the US. The Company also provides advertising platform, streaming channels, streaming devices, and Roku TV around the world.

On 4 August 2021, Roku has scheduled its Q2 FY21 results for release.

Investment Rationale – SELL at USD 479.50

  • Roku has yielded a stellar 217% share price return in the past year, giving an attractive opportunity to book profits.
  • The persistent supply chain constraints amid different rates of recovery worldwide from Covid-19 pandemic keeping the outlook gloomy.
  • The high volume of TV streaming might not be sustained with the ease of lockdown restrictions.
  • From a technical standpoint, ROKU’s stock price has breached its upper Bollinger Band, while 14-day RSI (71.83) is reiterating the overbought zone.
  • On a forward 12-month basis - EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are quite overvalued against the corresponding multiples of the Consumer Cyclicals sector.

Risk Assessments

  • Sustained high demand for IT products and consumer electronics categories has created logistic delays.
  • Inflation fears and overstretched stock price can keep the price volatile in the short-term.
  • With lockdown easing, stay-at-home order can experience growth rate slowdown in H2 FY21.

Recent News

New Agreement: On 27 May 2021, Roku announced a landmark agreement with Saban Films, which is Roku’s first-ever pay-one licensing agreement.

Financial Highlights for the quarterly period ended 31 March 2021 (as on 6 May 2021)

 (Source: Company Website)

  • Roku delivered exceptional growth in content distribution partnerships and advertising business during the first quarter of FY21.
  • Revenue surged 79% year-on-year in Q1 FY21, following the 101% year-on-year revenue growth in the platform business.
  • Similarly, gross profit surged 132% year-on-year in Q1 FY21, while the Company added 2.4 million incremental Active Accounts.
  • The streaming hours soared by 1.4 billion hours over Q1 FY20 and Average Revenue Per User grew 32% year-on-year in Q1 FY21.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative)

Conclusion

Roku is trading nearly at its 52-week high after yielding a remarkable return in the past year. Moreover, the Company might not be able to sustain the orders amid lockdown easing, inflationary pressure, and a widespread shortage of consumer electronics. As the macro environment is also uncertain, it is prudent to book profit at the present levels. The stock made a 52 week High and Low of USD 490.76 and USD 143.21, respectively.

Based on the robust notional gains, supply chain constraints, uncertain outlook, and unfavourable valuation conducted above, we have given a “SELL” stance on Roku Inc at the closing price of USD 479.50 (as on 26 July 2021), while we look forward to reinvesting when short-term uncertainties fade away.

 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.


Disclaimer

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