The Ratings Game: Roku stock has quadrupled this year – but RBC sees 30% upside

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Roku Inc.’s stock has surged 300% so far this year, but RBC Capital Markets’ Mark Mahaney is joining the chorus of analysts who argue that the shares have more room to run.

Though Mahaney moved to the sidelines on Roku ROKU, +6.07%  over the summer, he turned bullish on the stock once again late on Thursday following a roughly 30% drop from the company’s closing high notched in early September. That pullback creates an “attractive entry point” according to Mahaney, who raised his price target to $155 from $107. The new target implies 28% upside from current levels, taking into account Roku’s 3.5% rise in Friday morning trading.

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Mahaney said Roku scores well in his “crucial combo” of revenue growth plus earnings before interest, tax, depreciation and amortization (Ebitda) margin, which he deems a useful way to evaluate small-capitalization internet companies. Though the company’s Ebitda margin is projected to be slightly negative for the third quarter, Mahaney expects 46% revenue growth for the period, which would amount to a strong “crucial combo” score relative to peers.

Mahaney is also drawn to the company’s positioning in the attractive streaming landscape, with a big opportunity to eat into TV ad dollars and benefit from the launches of new streaming services. As the market for streaming offerings becomes more fragmented, Roku should be able to lessen its reliance on YouTube, Inc.’s AMZN, +1.33%  Prime Video, and Netflix Inc. NFLX, +1.82%  He also sees potential for the company as it expands internationally and grows its Roku Channel, a curated hub for ad-supported content.

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RBC’s move to the bull camp isn’t particularly unusual. Of the 17 analysts tracked by FactSet who cover Roku’s stock, 12 have buy ratings, three have hold ratings, and two rate the stock at sell. The average price target on FactSet is $134.94, dragged down by bearish targets as low as $60.

Roku shares have fallen 19% over the past month, as the S&P 500 SPX, +1.73%  has dropped 0.6%.