Citi Analyst Sees Roku Falling 45%, Downgrades To Sell

Aftera huge runup since its September IPO, it's only natural for some Wall Street analysts to start suggesting investors sell Roku Inc ROKU and pocket their gains.

The Analyst

Citi's Mark May downgraded Roku's stock from Neutral to Sell, with a price target raised from $27 to $28.

The Thesis

Within just three months of its IPO, share of Roku soared 266 percent and now boasts a $6 billion market cap, May said in a note. From a valuation perspective, the stock is now trading at 8.7 times EV/2018 revenue and 21 times gross profit. By comparison, Netflix, Inc. NFLX is trading at 18 times EV/2018 revenue and 5.2 times gross profit. Roku also faces intense competition from larger tech companies with much deeper pockets and bigger product portfolios.

On the positive side, Roku has established itself as "one of the most well-known" brands in the over-the-top video streaming space and its ad revenue growth rate could grow by 82 percent in 2018, according to May. However, the stock "appears expensive" compared to not only Netflix but the entire group of internet media and hardware which is trading at 3 times EV/sales.

Price Action

Shares of Roku were trading lower by more than 7 percentat $47.30.

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Image Credit: Mattnad - Own work, CC BY-SA 3.0, via Wikimedia Commons