Roku Downgraded, Analyst Calls Stock Too Expensive

Roku Inc ROKU has been on the rise since posting a remarkable bottom-line beat Nov. 8, but a mid-day Oppenheimer note put a pause on the rally.

The Analyst

Oppenheimer analysts Jason Helfstein and Jed Kelly downgraded Roku to Underperform and established a $28 price target on the stock.

The Thesis

The analysts expect algorithmic or non-fundamental trading driving Roku shares, considering a post-IPO volume inconsistent with peer averages.

“In our view, the stock is trading on non-fundamental factors, driven by a limited float (9 percent of non-GAAP shares) and high short interest (likely over 46 percent of float, as data is delayed),” Helfstein and Kelly wrote Tuesday, adding that it’s difficult to justify relatively high valuation despite leading over-the-top streaming peers.

Acknowledging Roku as the most expensive publicly traded Internet-based company "on the basis of Platform revenue or Platform gross profit," Oppenheimer attributed the firm’s gross profit consensus beat to one-time factors and anticipate immediate growth deceleration.

Price Change

Roku had traded steadily around $20 ahead of its third-quarter earnings, which propelled the stock to a $48.80 high Tuesday. Oppenheimer’s bearish note prompted a sharp fall, and at time of publication, shares were trading down 5.4 percent at $40.40.

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Image credit: Mattnad (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons