Editor’s note: This column is part of InvestorPlace.com’s Best Stocks for 2022 contest. Bret Kenwell’s pick for the contest is Roku (NASDAQ:ROKU) stock.

Growth stocks are a tough enigma for investors right now, Roku (NASDAQ:ROKU) included. In fact, ROKU stock had enjoyed a powerful multi-bagger return from its 2020 low to this year’s high.

In that span, shares rallied more than 500%. So it’s only natural now that some of those gains come out. However, this has less to do with Roku and more to do with growth stocks as a whole.

We were lucky and caught the bottom in May. While that bounce sent Roku stock up to new all-time highs, the stock is now down severely — even undercutting the May low. Shares made new lows again on Dec. 15, this time on a downgrade from Morgan Stanley.

While a downgrade shouldn’t move a stock by 10% to 12%, that’s the type of climate we’re in with growth stocks right now.

A Bear Market Is a Bull’s Opportunity
Overall, bear markets aren’t ideal for those that are long. I’m long and let me tell you, it isn’t great. However, there is a silver lining here.

It gives investors a chance to swoop in and pick up stocks at a massive discount. I don’t know that the Ark Innovation Fund (NYSEARCA:ARKK) has bottomed or that Roku stock has bottomed. But what I do know is that at the December low, Roku was down more than 61% from its all-time high made just 141 days prior.

For a high-quality company, that’s terrible performance. That’s what’s known as “a good company and a bad stock.” In fact, I even made a YouTube video about why I like buying high-quality growth stocks when they are down 40% or more.

The stock market is very firmly in a bull market, with the S&P 500 and Nasdaq Composite up 21.6% and 16.2% so far this year, respectively. However, growth stocks like Roku are firmly in a bear market.

Source: Chart courtesy of TrendSpider

I’m using my pick of the year to venture from a potentially safe and trending stock and going with a down-and-out pick. It’s like a “Dogs of the Dow” selection, but on steroids.

The risk here is clear: The rest of the stock market falls into some type of correction — which wouldn’t be weird after this big of a rally — and it weighs on growth stocks even more. Or growth stocks in general lag the rest of the market.

However, the reward is clear too: Roku stock could double from current levels and still remain down 22% below its all-time high. If we revisit the all-time high in 2022, it will mean Roku rallied almost 160% from the Dec. 15 low.

Why We Like Roku Stock for 2022
In December 2021, I made a case for owning Roku stock amid the massive decline. The first reason I listed? The secular growth trajectory of streaming video.

Streaming video — be it YouTube or over-the-top options — continues to gain steam. It had strong growth before Covid, erupted during the pandemic and will continue to grow after the pandemic.

It’s why so many companies and so many platforms are piling into the space. But no one can seem to catch Roku, which is expanding internationally while already generating strong results.

One would think we saw “peak streaming” in the second and third quarters of 2020. That’s April through September of that year, amid heavy restrictions and lockdowns. That’s not true, though. Last quarter, Roku generated 18 billion hours of streaming, up 21% year-over-year (YOY). Active accounts climbed too, up 23% year over year to 56.4 million customers.

That compares to active accounts of 43 and 46 million in Q2 and Q3, respectively, and 14.6 billion and 14.8 billion streaming hours, again, respectively.

Roku wasn’t done there, though. In the most recent quarter, average revenue per user (ARPU) grew 49% YOY, while platform revenue (the real money maker) climbed more than 80% and gross profit jumped almost 70%. Roku is also free cash flow positive, by the way.

Furthermore, despite disappointing guidance in the most recent quarter, analysts still expect 36% revenue growth in 2022 and 32% growth in 2023.

The Bottom Line on ROKU Stock
Collectively, we can’t sway the stock market or how the market reacts to individual headlines. However, we know that Roku stock has strong growth projections and is the leader in a secular growth industry.

I don’t know if the stock has bottomed or where it will be next month, let alone in 12 months from now.

By buying good companies with strong growth, though, we move the odds considerably in our favor when it comes to generating market-beating returns — and that’s exactly what we’re aiming to do with ROKU stock.

— Bret Kenwell

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Source: Investor Place