Roku Inc ROKU reported its third-quarter results in early November, sending shares soaring higher by more than 50 percent. Heading into the company's fourth-quarter report Wednesday, investors could be treated to another surprise — but this isn't reason enough to buy the stock, according to Citi.
The Analyst
Citi's Mark May maintains a Sell rating on Roku's stock with an unchanged $28 price target.
The Thesis
Similar to Roku's Q3 report, the company could report upside to consensus estimates, which would push the stock higher, May said in a note. (See the analyst's track record here.)
Upside in Q4 would likely come from the advertising business, which remains small at $200 million per year — and management's guidance for the quarter was conservative, May said.
But Roku's current stock valuation already assumes an "overly optimistic" long-term view of the potential of its advertising business, he said.The analyst said he's adding Roku's stock to Citi's "Positive Catalyst Watch list," but also maintaining a Sell rating on the stock.
Price Action
Shares of Roku were trading higher by more than 6 percent Tuesday afternoon at $51.11.
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Photo courtesy of Roku.
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