On Wednesday, Roku Inc. (NASDAQ:ROKU) shares plunged by more than 11% after receiving a rating downgrade from Moffett. The firm downgraded ROKU stock to sell from neutral, assigning a price target of $220. Analyst Michael Nathanson cited the company’s revenue mix as a major concern on initial revenue projections.
Nathanson said a huge chunk of Roku’s long-tail ad revenue growth sources are from third-party services and that this could slow down significantly amid industry consolidation. The analyst reduced his Roku revenue estimate for 2025 by 17%.
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Roku shares are down more than 23% this year after plummeting by nearly 50% since the 26th of July.
Should you bet on long-term growth?
From a valuation perspective, Roku shares trade at steep trailing 12-month and forward P/E ratios of 117.73 and 150.12, respectively. Therefore, value investors could opt for alternatives in the market.
However, the company offers exciting growth prospects with analysts forecasting an EPS growth of nearly 73% this year and an average annual growth rate of 64.40% over the next five years.
Therefore, it could be a compelling option for long-term investors willing to overlook the short-term turbulence.
Technically, Roku stock seems to be trading within a descending channel formation in the intraday chart. As a result, the stock has plunged into the oversold conditions of the 14-day RSI.
However, with shares far from retesting the trendline support, investors could target extended short-term declines at about $220.89, or lower at $192.56.
On the other hand, $264.25 and $292.37 are crucial resistance zones.
Roku seems poised for more declines
In summary, although Roku shares have plunged deep into oversold conditions, the stock still trades at steep valuation multiples, making it less attractive for short-term buyers.
In addition, Moffett’s recent rating downgrade touches on some key metrics that put its exciting growth prospects in question. Therefore, it may be best to monitor the performances before betting on long-term growth.
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