ROKU Forensic Analysis

BUYConviction: 8/10Price: $111.1710-Q
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Price Targets (12m)

Bull Case
$145.00
+30.4% from current
Base Case
$125.00
+12.4% from current
Bear Case
$88.00
-20.8% from current

PART 1: TRADING EXECUTION

Trading Setup & Entry Strategy

Action: ACCUMULATE / BUY DIPS

Thesis: ROKU presents a classic "Pullback in Uptrend" setup. The stock is trading significantly above its 200-Day SMA ($90.87), confirming a secular bull trend, yet the RSI (39.55) indicates a short-term oversold condition. This divergence—strong long-term structure with weak short-term momentum—offers the asymmetry required by the user profile. Fundamentally, the shift to GAAP profitability in Q3 2025 provides the floor.

  • •

    Entry Zones:

    • •Tranche 1 (40%): Enter at market ($111.17) to capture the immediate bounce off the 1D +6.30% move.
    • •Tranche 2 (40%): Limit orders at $104.50 - $105.30 (Confluence of SMA10, SMA50, and recent support).
    • •Tranche 3 (20%): Breakout add if price closes above Upper Bollinger Band ($114.79).
  • •

    Stop Loss:

    • •Hard Stop: $99.80. A close below the psychological $100 level and the lower Bollinger Band invalidates the immediate uptrend structure.
    • •Trailing Stop: If price exceeds $120, trail stop to break-even ($111).
  • •

    Targets:

    • •TP1: $118.50 (Recent swing high resistance).
    • •TP2: $135.00 (Fibonacci extension and valuation re-rate target).
  • •

    Risk Profile: Risking ~$11/share to make ~$24/share (1:2.2 R/R on TP2). Max hold: 4-6 weeks for swing; re-evaluate at next earnings.

PART 2: DETAILED RESEARCH

Executive Summary

Analysis Date: 2026-01-28 | Price: $111.17

ROKU has successfully executed a "profitability pivot." The Q3 2025 10-Q reveals a swing to $9.5M Operating Income (from a -$35.8M loss YoY) and $376M in Operating Cash Flow YTD. The acquisition of Frndly TV (May 2025) signals a strategic shift toward recurring subscription revenue to offset hardware cyclicality. While insider selling by CEO Anthony Wood is a red flag, the combination of Free Cash Flow generation ($443M TTM) and a technical uptrend (Price > SMA200) overrides the insider sentiment. We are buying the fundamental turnaround.

Recent Material Events (8-K Analysis)

  • •Oct 30, 2025: Q3 Earnings release confirmed the pivot to GAAP net income ($24.8M).
  • •July 2025: Stock Repurchase Program authorized for $400M. In Q3, ROKU repurchased $50M at an avg price of $88.10. The current price ($111) is 26% above the buyback floor, confirming management viewed the stock as undervalued in the $80s.
  • •May 2025: Acquired Frndly TV for ~$170M ($103M cash + earnouts). This is a strategic bolt-on to boost subscription revenue diversity.

Insider Trading Activity

  • •Activity: HEAVY SELLING.
  • •Details: CEO Anthony Wood adopted a 10b5-1 plan in Aug 2025 to sell 750,000 shares. CFO Dan Jedda and others are also selling.
  • •Signal: ⚠️ Bearish/Cautionary. Executives are taking liquidity into the rally. While common after a long drawdown, the volume of selling requires us to be strict with stop losses. They are selling into the strength we are buying.

Current News & Market Context

  • •Sentiment: Mixed. Recent headlines highlight a bounce-back in 2025 but note volatility.
  • •Macro: The "One Big Beautiful Bill Act" (July 2025) reinstated 100% bonus depreciation and R&D expensing, providing a material tax benefit and cash flow boost to ROKU.
  • •Sector: Ad-spend environment is stabilizing. ROKU is outperforming peers in monetizing engagement, evidenced by Platform revenue growing 17% YoY.

Business Model & Financial Health

  • •Revenue Mix: The mix continues to shift favorably. Platform Revenue (High Margin) is now 88% of total revenue ($1.06B), up from 85% YoY. Devices (Hardware) accounts for only 12% and operates at a loss.
  • •Margins:
    • •Platform Gross Margin: 51% (Stable).
    • •Devices Gross Margin: -15.7% (Loss leader strategy remains active).
  • •Balance Sheet: Fortress. $1.57B in Cash/Liquidity. Zero draw on the $300M revolving credit facility.

Valuation Analysis

  • •Reverse DCF: At $111.17, the market implies a ~12-14% growth rate in FCF for the next 5 years. Given current Platform revenue growth is 17% and OpEx leverage is improving, the stock is fairly valued to slightly undervalued.
  • •Comparables: Trading at a premium to legacy hardware peers but a discount to pure-play ad-tech/SaaS high-flyers. The pivot to positive GAAP income justifies a multiple expansion.

Management Quality

  • •Execution: Excellent. Management successfully navigated the post-COVID crash and reduced OpEx growth (OpEx flat YoY at $515M) while growing revenue 14%.
  • •Alignment: Poor. The heavy insider selling by the CEO specifically is a concern. We prefer to see management holding through a breakout.

Forensic Accounting Flags ⚠️

  • •Revenue Quality: ⚠️ Receivables Growth. Accounts Receivable is $745M. We must monitor if AR grows faster than Revenue, indicating channel stuffing or payment terms relaxation. Currently, it is stable.
  • •Inventory: ⚠️ Write-downs. Devices cost of revenue includes significant inventory provisions ($17M in Q3). This suggests demand forecasting issues for hardware, though hardware is a loss leader.

Technical Analysis & Trade Timing

  • •Trend: BULLISH. Price ($111) > SMA50 ($104) > SMA200 ($90). This is a "Golden Cross" configuration.
  • •Momentum: OVERSOLD/DIVERGENT. The RSI (14) is 39.55. Typically, an RSI < 40 in a strong uptrend (Price > SMA200) creates a high-probability "Buy the Dip" signal.
  • •MACD: Bearish crossover indicates the recent pullback is active, but the daily +6.30% move suggests the reversal is starting now.
  • •Support/Resistance: The $100-$104 zone is a concrete floor (SMA50 + Lower Band). Upside air pocket exists until $118.

Short-Term Trading Strategy (2-5 Days)

  • •Timeframe: SWING_2_5_DAYS
  • •Strategy: Momentum Reversal. The stock jumped 6.3% today. We are buying the continuation of this reversal out of the oversold RSI condition.
  • •Plan:
    1. •Buy 50% position at Open ($111.xx).
    2. •Add 50% if price holds above VWAP ($110.50) by mid-day.
    3. •Take 1/3 profit at $114.75 (Upper Bollinger Band).
    4. •Hold remainder for swing to $118.

Catalysts & Timeline

  • •Earnings: Q4 Earnings likely in Feb 2026. Trade must be managed or closed before this binary event.
  • •Macro: Fed meeting outcomes regarding interest rates will impact high-duration assets like ROKU.

Investment Recommendation

Rating: BUY (Tactical) Conviction: 7.5/10

ROKU has achieved the holy grail of growth turnarounds: GAAP Profitability while maintaining double-digit revenue growth. The current technical setup (Pullback to support within a primary uptrend) perfectly fits a risk-seeking but disciplined trader. We are buying a profitable company with strong cash flows at a technical discount.

One-Liner Thesis: ROKU has successfully pivoted to GAAP profitability and positive free cash flow; the current technical pullback to the 50-day SMA with an RSI of ~40 offers a high-asymmetry entry point into a confirmed uptrend.