1 Growth Stock Down 87% to Buy Right Now

Media-streaming technology innovator Roku (NASDAQ: ROKU) is always riding a roller coaster down Wall Street. As of April 23, the stock is trading 36% below its annual peak and 87% down from the all-time highs in the summer of 2021.

But Roku's high-octane growth story is still playing out. The company sacrificed some profits to boost its market reach and sales growth in recent years, and many investors focused on the swooning bottom line instead of the accelerating revenue trend. As a result, Roku's stock now trades at a ridiculously low valuation and I highly recommend buying a few shares in April 2025.

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Roku's value-stock valuation neighbors

So here's the deal. Roku's stock is changing hands at 2.2 times trailing sales. That's an appropriate valuation for mature, slow-growing businesses. For example, The Home Depot (NYSE: HD) carries the same 2.2 price-to-sales (P/S) ratio and Starbucks (NASDAQ: SBUX) hovers just above this unlikely duo with a P/S ratio of 2.6.

Starbucks and Home Depot are perfectly respectable companies. They're great investments in their own right, in large part thanks to their generous dividend policies. Investors expect these retail giants to generate massive cash profits, most of which are distributed to shareholders in the form of buybacks and dividends. Sales growth isn't terribly important in this scenario. It's all about bottom-line profits.

Not your barista's growth trajectory

But Roku isn't running that type of business yet. It could get there in a decade or two, but this company is maximizing its revenue growth and global market reach right now. There was a slowdown in the inflation crisis of 2022, but that's ancient history already. Roku is growing its business much faster than Starbucks and Home Depot:

ROKU Revenue (TTM) data by YCharts

Roku's profit-sapping business growth methods

Roku's impressive sales growth was built on some temporarily painful policies. The company boosted its research and development (R&D) budgets throughout the difficult post-lockdown and high-inflation periods. Did it slow down on sales and marketing efforts? Nope, those budgets rose just as quickly as the R&D spending. At the same time, gross margins headed lower because Roku sold its media players at very low prices in order to win some price-sensitive customers.

Things have changed since then. Roku is pursuing international markets while building its presence in the video-based digital advertising sector. This isn't the most inspiring economy ever for advertising experts, with unpredictable government policies and low consumer confidence, so it could take some time before Roku's ad business starts pulling its weight.

Smart ways to buy a roller-coaster stock like Roku

That's alright, though. I showed you that Roku's revenue growth is accelerating right now. The company's robust American business forms a rock-solid platform from which it can explore opportunities abroad, much like former parent company Netflix (NASDAQ: NFLX) did in the 2010 to 2015 era. I can't promise that Roku will earn a trillion-dollar market cap any time soon, as Netflix hopes to do, but the stock looks incredibly undervalued at today's tiny valuation ratios.

So Roku checks all the boxes for a promising long-term growth investment. It's an exciting growth stock (check!) in a booming global market (check!), trading at bargain-bin prices (check!).

Volatility comes with the territory, and you might want to blunt the price risk by spreading out your Roku investment over time. Buying in thirds is one reasonable approach, or you could make a deeper commitment by setting up a dollar-cost averaging plan. The more you can automate these moves, the better.

And keep an eye on that P/S ratio. Roku's stock doesn't belong in the same value-investing conversation as Home Depot and Starbucks in the long run. Netflix is a more reasonable peer, currently trading at 11 times sales.

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

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