Citi Maintains Sell Rating On Roku, But Expects Positive Q4 Surprise

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.