Cramer On Roku's IPO

Roku Inc ROKU's stock soared immediately after its initial public offering, which had many investors wondering if they missed out on a golden opportunity.

Roku, a maker of technologies that allow users to stream video directly to a TV, happens to be growing at a strong rate and is in fact the No. 1 player in the streaming market, CNBC's Jim Cramer said during his daily "Mad Money" show last Friday. Roku's technology is also included in many new TVs, and the company also has a strong advertising business that sells ad spots. That would make the stock a screaming a buy despite its post-IPO run, right?

Not so fast, Cramer cautioned. The biggest threat to Roku's business is its competitors, including Apple Inc. AAPL's Apple TV, Alphabet Inc GOOG GOOGL's Chromecast and Amazon.com, Inc. AMZN's Fire Stick.

Granted, companies like Apple, Alphabet and Amazon are much more focused on other aspects of their business as opposed to merely the cord-cutting crowd. Nevertheless, Roku is well within the companies' crosshairs, a position that can never be a positive for anyone.

Also, Roku's path toward profitability isn't as compelling as Cramer would hope for. While the company is showing revenue growth the highly competitive environment should keep investors on edge.

"If you got in on the amazing Roku IPO, good for you," Cramer concluded. "You made a fortune. But when you dig deeper into the story, it's clear that there are a lot of things that could trip up investors. I don't want you to get burned. I say take a pass up here."

Bottom line, Roku could become at some point in the future a profitable business but the risk to reward profile isn't very favorable for investors.

Early afternoon Monday, shares of Roku were slipping 11.3 percent at $23.54.

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Roku On Wall Street: Did The Stock Fare Better Than Other Recent IPOs? _______ Image Credit: By Mattnad - Own work, CC BY-SA 3.0, via Wikimedia Commons