Roku's stock may be undervalued despite high ratios

Some investors think Roku's stock is too pricey, trading at high prices like 120 times its expected earnings. These numbers can make investors nervous. However, some analysts argue that Roku's valuation should be viewed differently. Roku is currently unprofitable, and its stock price may seem high based on next year's expected earnings. The low profits relate to the company’s focus on growing its revenue rapidly. For instance, Roku's hardware products currently have low margins since they are used to attract customers. A different way to assess Roku's value is through its sales growth. Recent data shows that the company's sales are increasing sharply, leading to a lower price-to-sales ratio. This ratio is now among the lowest ever for Roku's stock. Despite recent challenges, like the inflation crisis in 2022, Roku is back to growing its sales significantly. Roku is still in early stages of expanding internationally, which could fuel more growth. Analysts believe that, compared to other low-growth businesses, Roku deserves a higher price-to-sales ratio due to its potential.