Could This Growth Stock Have a Meteoric Rise in 2025?

2024 might have been another banner year for stocks, but not all businesses made their investors money. There's one industry-leading stock that dropped 11% last year.

Despite what the share price signals, this company continues to post solid double-digit revenue growth. Perhaps the market will adopt a more favorable perspective as we look ahead.

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Can this beaten-down growth stock have a meteoric rise in 2025?

Well-positioned in streaming

Investors should keep an eye on Roku (NASDAQ: ROKU), a leading smart-TV platform that currently has 85.5 million households as customers. That figure was up 13% year over year, which fueled a sales gain of 16% to almost $1.1 billion in the third quarter of 2024 (ended Sept. 30).

That growth trajectory is certainly impressive. It showcases how well-positioned Roku is. The business is benefiting directly from two powerful secular trends shaping our economy.

The first is the rise of streaming entertainment. Drawn to lower prices, greater choice, and a better user experience overall, people are ditching their cable-TV packages to sign up for streaming subscriptions. Roku provides a platform for users to easily access all their content in one place. As this trend continues, the business is likely to see even more customers join.

Digital advertising is another tailwind propelling Roku. In November 2024, streaming accounted for 41.6% of total TV viewing time per day in the U.S., a percentage that has risen steadily. Advertisers want to follow the eyeballs, so there is meaningful potential for Roku to capture this spend.

Competitive forces

Streaming video entertainment is a powerful and lucrative secular trend, as I just noted. Therefore, it's not a surprise that the industry is extremely competitive when it comes to both content companies and distributors. In typical fashion, the market has attracted tech heavyweights looking to get their slice of the pie.

Alphabet, Amazon, and Apple, dominant businesses that serve billions of customers, are direct competitors to Roku. All three companies not only have their own streaming subscription services, they also offer distribution platforms.

Roku's platform segment, which is where its advertising operations are housed (as well as revenue from distribution and licensing agreements), reported $908 million of revenue in the three months that ended Sept. 30. This is a drop in the bucket compared to the total ad sales of around $80 billion that Alphabet, Apple, and Amazon raked in during Q3.

Despite those tech giants having top-notch skills in digital advertising, as well as unlimited financial resources, it's worth noting that Roku commands top market share among smart-TV operating systems in the U.S., Canada, and Mexico. Clearly, it has found success in the face of formidable opponents.

Favorable setup

Roku continues to grow at a robust pace. What's more, the fact that the platform has leading share in the important North America market is noteworthy. These positive traits make the business worth paying attention to.

After dropping 11% in 2024, the stock currently trades below its all-time high. As a result, I believe investors are presented with a very favorable setup.

At a price-to-sales (P/S) ratio of under 2.8, shares carry an attractive valuation, in my opinion. Historically, they sold for an average P/S multiple of 9.1. The market's perception of the company has certainly a taken a hit. Maybe it's due to slower growth following the pandemic surge.

I think it's possible for the stock to have a huge jump in 2025, but that depends on market sentiment improving, which is unpredictable. In other words, it's impossible to know if the P/S ratio can climb higher this year. Nonetheless, the stock deserves a closer look from long-term investors who have the ability to hold for several years.

Should you invest $1,000 in Roku right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Roku. The Motley Fool has a disclosure policy.