1 Growth Stock Down 50% to Buy Right Now

Media-streaming technology expert Roku (NASDAQ: ROKU) has seen better days. As of Jan. 28, Roku's stock price has fallen 50% lower in three years. The digital advertising market -- a crucial contributor to the company's business results -- seems stuck in a multiyear downturn.

And despite all that, it's still one of the best stocks you can buy today. Roku is poised for a roaring comeback, pulling every possible lever to set itself up for success in a healthier economy.

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Why many investors stay away from Roku's stock today

The bearish arguments against buying Roku stock are simple, and they make sense at a glance:

• Common analysis tools such as price-to-earnings (P/E) don't make sense with Roku's negative earnings.
• Some profit-based valuation metrics still work, but they make the stock look expensive. Roku's shares are trading at 82 times free cash flows or 63 times earnings before interest, depreciation, taxes, and amortization (EBITDA).
• Even growth investors may back off when they see Roku's annual revenue growth backing down from 81% in 2021 to approximately 16% in the last five reports.
• And the digital advertising sector must still be broken. After all, Roku's average revenue per user (ARPU) has not increased at all in the last five quarters, despite 13% more customer households and a 20% increase in media-streaming hours over that period.

Why Roku's future is brighter than it seems

Look a little closer, and you'll see why I'm so enthusiastic about Roku's growth prospects:

• The company is optimizing its business plan to win market share and find more subscribers, especially abroad. Introducing Roku's streaming platform in new markets is an expensive project, and every new subscriber overseas holds back the positive ARPU effects of stronger domestic ad sales.
• Taxable income may be negative, but Roku is collecting positive free cash flows to the tune of $149 million a year. Thanks to a disciplined cost-cutting effort, the company's operating expenses should decline somewhat in 2024 despite a heavy marketing push in the holiday season. I expect strong cash profits in February's fourth-quarter report. P/E ratios should stay negative for years to come, but the cash flow-based valuation metrics are on the brink of making Roku stock look cheap.
• Other companies in the online advertising space are showing firm signs of a better ad market. The inflation crisis is fading out, consumers are going back to both physical and digital stores, and generous marketing budgets look reasonable again. I think Roku picked a great time to start an ad platform partnership with reseller The Trade Desk, and the upcoming earnings report should support my theory. Look for better ARPU figures (despite the ongoing overseas growth effort) and management's comments on the ad market.

Wall Street is finally catching on to Roku's potential

Finally, I'm not alone in my bullish Roku views. This stock is starting to look like Wall Street's worst-kept secret.

The number of "buy" ratings from analyst firms has risen from seven last summer to 10 today. At the same time, the percentage of Roku shares on loan to short-selling bears is down from 8% to 5.6%.

With more bullish analysts and fewer people actively betting against the stock, the market looks prepared for a price surge. Roku has crushed the Street's consensus earnings and revenue estimated in each of the last four reports, and the next one should continue that trend.

The fourth-quarter report is due on Thursday, Feb. 13. I highly recommend picking up a few Roku shares before then.

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Anders Bylund has positions in Roku and The Trade Desk. The Motley Fool has positions in and recommends Roku and The Trade Desk. The Motley Fool has a disclosure policy.