Meet Roku Inc’s (ROKU) New Bear

Oppenheimer sees ROKU trading right now on factors stemming from limited float and soaring short interest.


Does Roku Inc (NASDAQ:ROKU) stock cost too much now? After the digital streaming business delivered a robust first public quarter, shares initially shot up 126% in value within three days. However, one voice on Wall Street questions if valuation has become overpriced, landing Roku with a new bear on its hands.

Shares suddenly took a 13% crash yesterday and continue to plummet 6% today in pre-market trading once word got out that Oppenheimer analyst Jason Helfstein stepped down from the sidelines, pointing a finger at a sky-high price compared to other Internet-based rivals.

Therefore, the analyst downgrades from a Perform to an Underperform rating on ROKU stock while establishing a $28 price target, which implies a 19% downside from where the stock is currently trading. (To watch Helfstein’s track record, click here)

Helfstein underscores, “While Roku has established itself as the leading independent OTT streaming platform though a device and software strategy, the stock is now the most expensive publicly traded Internet-based company, on the basis of Platform revenue or Platform gross profit. While 3Q Platform gross profit exceeded our estimate by 21%, this was partially driven by one-time factors, and growth should slow to normal levels in 4Q. In our view, the stock is trading on non-fundamental factors, driven by a limited float (15% of non-GAAP shares) and high short interest (likely over 27% of float, as data is delayed).”

Considering that Roku is “significantly more expensive than peers,” the analyst notes, “Roku shares trading at 18x/13x FY18E/FY19E total gross profit vs. our “aspirational” comp average (SNAP, FB, GOOG, TWTR) at 14x/9x and “peer” comp group (TWTR, YELP, TRUE, Z, P, CRTO, TTD) at 4x/3x.” In a nutshell, “To us, difficult to justify this valuation, even with secular growth trajectory and market position,” concludes Helfstein, turning bearish on the streaming platform and sending investor sentiment tumbling in the wake of his decision.

With Helfstein as the sole bear among voices that are all cautious on the stock, no one on Wall Street seems too confident on this player, with TipRanks analytics demonstrating ROKU as a Hold. Out of 4 analysts polled by TipRanks in the last 3 months, 3 remain sidelined on Roku stock while 1 is bearish on the stock. With a loss potential of nearly 29%, the stock’s consensus target price stands at $26.25.