Roku Is an Unexpected Value Play

California-based Roku (ROKU) provides a streaming-content platform. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

In the 2020s, Cathie Wood has become the poster child of the “momo” or momentum trade.

Wood’s well-known fund, the ARK Innovation ETF (ARKK), did exceptionally well at the beginning of 2021 but lost a great deal of its value in recent months.

Perhaps it’s time to dust off some of Wood’s preferred stocks and pick up some potential winners among the wreckage.

Could ROKU stock be one of them? You might be surprised to learn that Wood’s famous/infamous fund has a stake in Roku – and it’s a big enough position to get prospective investors thinking.

A Quick Look at ROKU Stock

Chances are, you’ve never considered Wood to be a value-focused investor. Yet, there appears to be a prime bargain with ROKU stock now.

If you’re a technical trader (or even if you’re not), you’ll definitely want to keep your eye on the $460 level.

That’s where ROKU stock went on three separate occasions this year before it declined quickly.

In other words, there’s a firm resistance level at $460, so you might want to take profits if you own ROKU stock and it gets back to that price point.

The most recent instance of the stock getting rejected at $460 was back in July. Since then, ROKU stock has been on a steady decline.

As of this writing, the share price was trading at around $217.

There’s a lesson here: don’t get greedy after a stock has doubled in price (which is what happened with ROKU stock in 2020).

Growing Across the Border

We’ll get to Wood’s position in Roku in a moment – you won’t want to miss it.

First, however, it’s important to check in on Roku’s business. Bear in mind that Roku’s operations aren’t limited to one country.

Here’s a clear example of this. According to a recent study conducted by the Hypothesis Group, Roku is the number-one TV-streaming platform in Mexico, based on hours streamed.

Not only that, but the study determined that consumers in Mexico view Roku as the best streaming platform for free TV shows and movies.

Arthur van Rest, vice president of International at Roku, credited the company’s customers and Roku’s many partners for these achievements in the Mexican content-streaming market.

Perhaps we should also credit Roku for introducing the Roku Streaming Stick 4K in the Mexican market earlier this year.

This product is known for offering powerful 4K streaming in a portable form factor.

Wood’s Stake in Roku

So now, we won’t keep you in suspense any longer.

We can surmise that Wood is bullish on ROKU stock, as it comprised a 5.1% weighting in the ARKK fund as of November 22.

Now, it’s difficult to know exactly why Wood’s fund purchased so many shares of the stock.

Possibly, it’s because Roku has been on a powerful growth trajectory. For example, the company added 1.3 million active accounts during 2021’s third quarter.

Furthermore, Roku’s total revenue increased 51% year-over-year to $680 million during those same three months.

Informed investors must also consider that Wood’s fund probably didn’t purchase ROKU stock at the perfect time.

If the stock was a good buy when the ARKK fund acquired it, then maybe it’s a terrific bargain today at its reduced price point.

Wall Street’s Take

Turning to Wall Street, Roku has a Moderate Buy consensus rating, based on 18 Buys, two Holds, and two Sells assigned in the past three months. The average Roku price target is $401.57, implying 86.2% upside potential.

The Takeaway

We can speculate all day long about why Wood’s fund bought shares of ROKU stock.

Yet, there’s no need to play guessing games. The data clearly indicates that Roku is a business in growth mode.

At the same time, the share price is far below its peak. So, even if Wood isn’t known for bargain hunting, you can still consider following her fund’s ROKU trade.

Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article. ​