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Russian (RU) Anders Bylund, The Motley Fool
Sat, Apr 26, 2025, 8:47 AM 4 min read
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Media-streaming technology innovator Roku (NASDAQ: ROKU) is always riding a roller coaster down Wall Street. As of April 23, the stock is trading 36% below its annual peak and 87% down from the all-time highs in the summer of 2021.
But Roku's high-octane growth story is still playing out. The company sacrificed some profits to boost its market reach and sales growth in recent years, and many investors focused on the swooning bottom line instead of the accelerating revenue trend. As a result, Roku's stock now trades at a ridiculously low valuation and I highly recommend buying a few shares in April 2025.
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So here's the deal. Roku's stock is changing hands at 2.2 times trailing sales. That's an appropriate valuation for mature, slow-growing businesses. For example, The Home Depot (NYSE: HD) carries the same 2.2 price-to-sales (P/S) ratio and Starbucks (NASDAQ: SBUX) hovers just above this unlikely duo with a P/S ratio of 2.6.
Starbucks and Home Depot are perfectly respectable companies. They're great investments in their own right, in large part thanks to their generous dividend policies. Investors expect these retail giants to generate massive cash profits, most of which are distributed to shareholders in the form of buybacks and dividends. Sales growth isn't terribly important in this scenario. It's all about bottom-line profits.
But Roku isn't running that type of business yet. It could get there in a decade or two, but this company is maximizing its revenue growth and global market reach right now. There was a slowdown in the inflation crisis of 2022, but that's ancient history already. Roku is growing its business much faster than Starbucks and Home Depot:
Roku's impressive sales growth was built on some temporarily painful policies. The company boosted its research and development (R&D) budgets throughout the difficult post-lockdown and high-inflation periods. Did it slow down on sales and marketing efforts? Nope, those budgets rose just as quickly as the R&D spending. At the same time, gross margins headed lower because Roku sold its media players at very low prices in order to win some price-sensitive customers.
Things have changed since then. Roku is pursuing international markets while building its presence in the video-based digital advertising sector. This isn't the most inspiring economy ever for advertising experts, with unpredictable government policies and low consumer confidence, so it could take some time before Roku's ad business starts pulling its weight.
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