Today, there are as many streaming services as there are quality TV shows.

Between names like Apple TV+, Disney+, HBO Max, AT&T TV NOW, NBCUniversal, and Discovery, you may soon be paying more than $50 a month just on streaming services.

But there’s an equally difficult decision you need to make… Before you can catch up on the latest episodes of Planet Earth or The Simpsons, you need to pick a streaming device.

Obviously, you can watch most of these on your phone or computer with no problem.

But when it comes to watching streaming services on your TV, your set-top box won’t cut it anymore.

The options are nearly endless.

Besides pricey smart TVs, you can pick from the big-name Amazon Fire Stick, Google Chromecast, or Apple TV, among others.

But when you need something in the middle, the best option is often from Roku (ROKU).

As I’ll show you today, this streaming-device maker is a much stronger company than Wall Street realizes.

And when the “streaming wars” took a dramatic new turn this month, the bad press buried this incredible opportunity even deeper…

Roku regularly dominates the “best of” lists from the folks at tech-focused websites like Wired, Wirecutter, and CNET. It offers the Streaming Stick+ that plugs into your TV, a standalone hockey-puck size Ultra model, and even its own smart-TV software.

But when viewed through a traditional accounting lens, Roku looks like a terrible company. Its as-reported return on assets (“ROA”) is negative.

Of course, my team and I specialize in what we call “Uniform Accounting” – a more reliable way of looking at companies than the accepted accounting policies, which are designed to be unclear and misleading.

If we look at Roku’s cleaned-up numbers, we can see it is a profitable business…

When we apply our Uniform Accounting metrics, we remove the distortions from as-reported accounting statements – and we can immediately see that Roku has a much stronger ROA than the market realizes.

And the fact is, this is a much more valuable number for investors… If you would have realized this discrepancy in December 2018 and invested in ROKU, you’d be up almost 300% today.

That’s the power of Uniform Accounting.

Roku’s triple-digit rebound from its December lows makes no sense for a business that is supposedly losing money year after year. It only makes sense when you know the company’s real numbers.

Not only is Roku profitable today, but it has actually been profitable for as long as it has been a public company…

The panel above explains Roku’s historical corporate performance in terms of ROA (dark blue bars). Broadly speaking, the company has seen ROA grow from 4% in 2015 up to peak 20% levels in 2018.

Roku makes great products in a successful niche. And it’s likely to win even as other companies like Amazon (AMZN), Disney (DIS), HBO, and Apple (AAPL) battle each other in what the media is calling the “streaming wars.”

Now, if you’ve been paying attention to the markets, you might be wondering what’s happened recently. Despite its overall spectacular gains this year, Roku’s stock has gotten crushed in recent weeks.

That’s because its competitors know how much they have to lose… And several of them announced new product launches that caught the market’s attention.

These included cable giant Comcast (CMCSA), the loser of the streaming wars. This month, it announced it was offering its Xfinity Flex streaming box to Internet-only subscribers for free, after charging $5 a month previously.

Social media giant Facebook (FB) also announced its second attempt to enter the streaming wars. It released a $149 “Portal TV” streaming device that will ship later this year.

Of course, Facebook released a video and chat “smart speaker” last year… to crickets. And Comcast’s free offering is one of dozens of streaming boxes available.

Competition from giant media companies is nothing new for Roku. It’s been competing against pricey smart TVs, the Amazon Fire TV Stick, Google’s Chromecast, Apple TV, and others… for years.

And it’s still been churning out profits… Yet most investors don’t see this. They can’t – because they’ve been misled by bad accounting policies.

I look at Wall Street’s reaction as an opportunity…

Roku has been profitable for as long as it has been a public company. An extra competitor in the streaming wars won’t change that.

The recent price drop only sweetens the deal for investors. Take this as an opportunity in a company that Wall Street doesn’t understand.


Joel Litman

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Source: Daily Wealth