Think Roku Is Expensive? This Chart Might Change Your Mind.
Is Roku too expensive at 120 times forward earnings? This alternative valuation chart tells a different story.
Some investors think Roku (NASDAQ: ROKU) stock is expensive, and it's easy to see why. The media-streaming technologist's shares trade at lofty valuation ratios like 95 times free cash flows and 120 times forward earnings estimates. It's enough to drive a nervous value investor distracted -- but I don't think Roku stock is expensive at all.
Sure, the company is unprofitable at the moment and the current stock price seems expensive in the context of next year's expected return to modestly positive earnings. But the tiny or negative profits are a direct result of Roku's focus on revenue growth. In particular, the hardware division is running at deeply negative profit margins as the company uses low-cost streaming gear as a marketing device.
Therefore, it makes more sense to look at Roku's stock in light of its sales-based valuation. From that perspective, Roku's stock is on a fire sale:
