1 Growth Stock Down 37% to Buy Right Now

Media-streaming technology expert Roku (NASDAQ: ROKU) is doing well lately. As of February 25, the stock has gained 23% over the last six months thanks to a couple of tremendous earnings reports.

But Roku is still down by 37% in three years, not to mention an 82% price drop from the lofty heights of 2021. You shouldn't expect the stock to regain its record-level share price of $480 or the matching market cap at $63.9 billion, but Roku's stock still isn't getting all the market love it deserves in 2025.

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Long story short, Roku is an undervalued growth stock today.

Roku is a classic growth stock

The market value of high-octane growth stocks is usually based on their revenue growth. Companies in this category typically aren't optimizing their profits just yet, preferring to invest most of their cash and efforts into growth-boosting things. Some double down on research and development, others are happy with their existing stuff and focus on sales and marketing instead. Either way, the main idea is to keep those financial jet engines running. Profits can wait until a later stage, when the company has built a large customer base, preferably on a global scale.

Roku is deeply enmeshed in this strategy. The company records negative gross profits in its devices segment every quarter, using low-cost hardware as a marketing tool. The company spent 40% of last year's gross profits on R&D budgets, funneling another 52% into sales and marketing.

These spending ratios are similar to former parent company Netflix (NASDAQ: NFLX) in the 2016-2017 era. It's no accident that Netflix recorded an average annual sales growth of roughly 30% in that period. This is the role model Roku is trying to emulate.

That valuation looks a lot like... Nike?

It's a pretty good impersonation, too. Roku's revenues rose by 18% in 2024 as a whole, punctuated by a 22% jump in the holiday-themed fourth quarter. The company is off to a roaring surge after a steep slowdown during the inflation crisis of 2022. Importantly, the growth rate is accelerating over time. Roku's business expansion is speeding up, not slowing down.

Yet, Roku shares are trading at very modest sales-based valuation ratios. The stock is changing hands at 3.2 times trailing sales, in the same ballpark as ultra-mature sportswear giant Nike (NYSE: NKE), trading at 2.5 times sales. Sure, Nike is profitable and pays a robust dividend, but its sales and earnings are shrinking over time.

I respect Nike and might argue that it's a turnaround story in the making -- but that only amplifies the valuation issue here. Roku's fast-growing business is valued like a mature value stock in full turnaround mode. That's simply not fair.

Roku is going global, and profits can still wait

The global media market is enormous and Roku has only started to nibble at foreign opportunities. It's an established leader in North America with dominant streaming platform market shares in the U.S., Canada, and Mexico -- but overseas operations don't even add up to a reportable business segment yet.

That should change fairly soon. Roku isn't posting actual numbers but CEO Anthony Wood often talks about the international growth trends in each earnings call. In February's fourth-quarter call, for example, Wood highlighted fast growth in Latin America and accelerating business gains in the United Kingdom.

"So we're making good progress in the markets we're focused on," Wood said. "Internationally, in most markets, except for maybe Canada, we're still focused primarily on scale of streaming households and less so on monetization -- but that will come."

If that strategy sounds familiar, you might hear echoes of Netflix again. Wood could certainly pick a worse role model than the industry peer with a shared history and a $418 billion market value. I think Roku's stock is widely misunderstood in 2025, and it has a lot of catching up to do before reaching a fair market value.

Until then, Roku's shares are a tremendous buy in my eyes.

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Anders Bylund has positions in Netflix and Roku. The Motley Fool has positions in and recommends Netflix, Nike, and Roku. The Motley Fool has a disclosure policy.