Shares of Roku Inc. have taken a beating the last few days amid a string of analyst downgrades. But shareholders can take some comfort in knowing that this was more a function of an overheated stock price than a sudden change in the TV-streamer’s business trajectory.
Roku lost $1.1 billion of market value in four days as investors heeded Citigroup Inc.’s advice and dumped the stock. Other analysts from Guggenheim Securities LLC, Macquarie Group Ltd. and Loop Capital Markets also lowered their ratings in recent days and weeks to “neutral” or “sell.” All cited the company’s valuation as a significant factor. That makes sense: Roku is still valued at an eye-popping 535 times estimated Ebitda, according to data compiled by Bloomberg. There are certainly some outlandish stock-price multiples in the technology and media industries, but Roku makes even Netflix Inc. – valued at 47 times Ebitda – look almost sensible.