Shares of Roku (NASDAQ: ROKU) charged out of the gate Friday, jumping as much as 14.2%. As of 12:34 p.m. ET, the stock was still up 12.3%.
The catalyst that propelled the streaming video pioneer higher was an upgrade and bullish commentary from a Wall Street analyst.
A compelling opportunity
Guggenheim analyst Michael Morris upgraded Roku stock to a buy from neutral (hold) while raising his price target to $75. For investors keeping track at home, that represents potential upside of 21% for investors compared to Thursday's closing price.
The analyst believes investors have been missing the forest for the trees but expects that to change when Roku reports its financial results in November. The company has been making progress on multiple fronts. Roku has been increasing the video advertising revenue from its streaming platform, thanks to partnerships with third-party demand-side platforms (DSP), as well as increasing ad sales on its home screen.
Hitting the nail on the head
The analyst has clearly done his research. Earlier this month, Roku announced its adoption of The Trade Desk's (NASDAQ: TTD) Unified ID 2.0, the company's widely adopted audience identity platform, which makes it easier for advertisers to reach their target markets. The integration of this technology will be a win-win for both parties, as Roku offers unmatched access to audiences, while The Trade Desk is recognized as the market-leading DSP, according to global consulting firm Frost and Sullivan.
There's also the matter of Roku's valuation. The stock was hit hard during the downturn, as ad revenue dried up. As a result, the stock is still down 85% from its high. Furthermore, the stock is attractively priced, selling for just 2 times forward sales.
These factors, combined with the ongoing rebound in the advertising market, represent a compelling opportunity for Roku and its investors.
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Danny Vena 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.
Why Roku Stock Rallied on Friday was originally published by The Motley Fool