Before buying and holding Roku stock, you should understand its maximum risks

One of the strongest and most recognizable trends across the economy over the past decade has been the transformation of the infotainment sector. All investors are watching the rise of streaming media.

I think (math.) genusRoku (NASDAQ resonance code: ROKU)It's a smart way to play this secular shift because it's well-positioned to benefit from the sector's growth. But before you rush out to buy and hold this one, it's a good idea to buy and hold this one. Streaming Stocks beforehand You need to know more about what the biggest risks are.

Measuring the industry context

Roku operates a true streaming platform. It creates an environment where advertisers can target streaming viewers. This so-called Internet TV setup competes with traditional broadcast and cable TV for marketing budgets.

In addition, Roku allows the viewer to carry the various streaming services in one easy-to-use interface. This in itself is extremely valuable given the number of choices currently on the market.

That means Roku has deals with some of the most popular services out there For exampleNetflix, Walt.Disney (name)of Disney+, Warner Brothers Discovery(used form a nominal expression) Max and Alphabet(used form a nominal expression) YouTubeTheThese businesses offer their own services on Roku, arranging various advertisements and subscribing to revenue-sharing agreements.

However, this also poses a significant risk. These content companies are strong in negotiations and may have an advantage over Roku in securing favorable terms. This suggests that Roku's demand for these content name partners may exceed their demand for Roku.

Netflix currently has 260 million subscribers worldwide, and YouTube has an estimated 2.5 billion. They all have a direct-to-consumer business model, and would probably be doing just fine without Roku's distribution capabilities. It's hard to find information on this, but I'd be surprised if Netflix and Alphabet are paying Roku anything. So, in Roku's Income StatementIn addition, there may be a lot of potential income that is being held back. The

A related concern is that the streaming industry may be consolidated into a few large content companies. Let's say that ten years from now there will be only Netflix, YouTube, and Disney. In such an unfavorable scenario, Roku's entire value proposition-which is to consolidate a large number of services into a single noodle-would be undermined. Investors cannot afford to ignore this end-to-end risk factor.

Should You Still Buy Roku Stock?

I think the best investors understand that every investment theory has its disadvantages. Understanding this will help you get a better handle on a particular company. However, even with these factors in mind, I still think Roku is a compelling investment opportunity.

Roku has one of the largest market shares of smartphone operating systems in the United States. These households are watching more and more content on the platform each year. The streaming and digital advertising industry has a long way to go in the next decade. These positive trends give Roku a lot of room for growth.

Now is the best time to buy the stocks as they are trading below their all-time highs by 88% Roku 鈥竝糹ke it hasn't benefited from the market rebound that began in 2023 as investors worry about recent macro and industry headwinds.

As a result, the price-to-sales ratio of the stock is only 2.4, and the discount to the historical average is a whopping 75%. If the company resumes strong growth and gradually becomes profitable, I believe investors will be rewarded.

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

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Alphabet executive Suzanne Frey is a member of The Motley Fool's board of directors. Neil Patel and his clients do not own any of the stocks mentioned above. the Motley Fool owns shares of recommended Alphabet, Netflix, Roku, Walt Disney, and Warner Bros. Discovery. the Motley Fool has a disclosure policy.

Before Buying and Holding Roku Stock, You Should Know Its Biggest Risks was originally published by The Motley Fool.