Roku Stock: Next Stop, $120?

There's been a surprising antidote to the market's recent volatility: channel surfing. Shares of Roku (NASDAQ: ROKU) have risen 38% over the past year, more than doubling the market's return. The stock remains brutally below its 2021 all-time high, but when it comes to recent momentum, Roku has it.

North America's top dog in operating systems for streaming TVs has been resilient, and it kicks off this new week of trading with another analyst jacking up Roku's price target. Vikram Kesavabhotla at Baird is raising his near-term price goal on the shares from $110 to $120, fueled by Roku's improving fundamentals and bullish catalysts.

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Making streams come true

Baird's move may not seem like a lot. The $120 goal is a modest 23% in upside from where Roku began the new week. However, it's yet another increase in a climate where many Wall Street price targets are being refreshed lower in the new normal.

Roku's prospects keep improving, and Baird's new goal is still well shy of the Street high. Citizens jacked up its Roku price target to $160 earlier this year, inspired by Roku's dominant market position, with a presence in roughly half of the country's living rooms.

Growth hasn't been an obstacle for Roku. It has delivered double-digit annual revenue jumps every year since going public nine years ago. Even when you zoom in on its quarterly performance, Roku is rolling with 11 consecutive reports of double-digit top-line growth.

The difference these days is that Roku's operations are improving, and its biggest rivals are seeing the industry pioneer as a partner rather than a competitor. Roku stock returned to profitability early last year, and in the last three months, the platform has gone from crawling to walking to running on that front.

The $80 million in net income it posted in its latest report was twice what Roku had modeled when it initiated guidance a couple of months earlier. Free cash flow more than doubled last year. Roku now sees net income tripling in 2026.

Opportunity knocks

A common knock on Roku is that it can't be the king of the hill for long. It's facing off in the realm of streaming TV hubs against Alphabet and Amazon, two of the wealthiest consumer tech businesses on the planet. Roku isn't losing the battle, as time spent on Roku rose 15% over the past year. Now, the titans of tech are playing nice with Roku to gain access to its expanding audience in adtech partnerships.

Roku teamed up with Amazon last summer, giving the world's largest public company by revenue a way to broaden its availability of connected TV ads. Two weeks ago, Roku announced it would be a launch partner for Google's new Display & Video 360 demand-side platform, which confidentially matches first-party data with publisher inventory. Roku doesn't have to reinvent the wheel when it can make other wheels go faster.

This is better news for Roku than you think. Its free, ad-supported The Roku Channel has become a rising star. A year ago it cracked the top five list of most popular apps on Roku itself. Now it's in second place, and not just on the namesake platform. The Roku Channel is the most-watched ad-supported service in the country, after Google's YouTube.

The landscape is changing for streaming service stocks. There have already been two major buyouts over the past year, and the leading players keep raising prices. The appetite for viewers has never been stronger, and Roku users are spending an average of roughly four hours a day leaning on the platform to lead the way.

It won't be a straight line to $120, much less $160, for Roku. We may not even get there if the bullish thesis starts to fall apart. However, you don't want to bet against Roku when it's dishing out one earnings beat after another and cranking out lowball guidance. Roku keeps the remote control close, ensuring investors don't turn elsewhere when it has a strong story to tell.

Rick Munarriz has positions in Alphabet and Roku. The Motley Fool has positions in and recommends Alphabet, Amazon, and Roku. The Motley Fool has a disclosure policy.