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  • Writer's pictureIshfaaq Peerally


More noises in the stock market as President Trump impeachment inquiry begins. These are noises and I don't think he will be impeached with a Republican majority senate. Nevertheless, it affects the market and with the movement of the $SPX500 , it seems the market doesn't know how to react to that news. In my portfolio, $GME continues to climb. I'm not begin given the opportunity to properly buy this stock. $GS is also up today and I took the opportunity to trim the position and reinvest the profits in $PE and $CXO which are both down after falling $OIL prices. Why is $GOLD $GLD falling? With the political turmoil, we would have expected it to rise. Well, I have no idea. That's why I tell you not to listen to the noise, just take the opportunity in volatile times to buy great companies at a discount.


When the stock price of a company falls, this is usually the best time to look at the company. Over the past weeks, the stock price of Roku $ROKU fell by more than 40%. Is it time to buy? The fall in Roku stock price was mainly because of competition coming from Apple $AAPL with Apple TV+ and Comcast $CMCSA .

Roku is a hardware company making streaming players which you connect to your TV. These players enables you to watch Netflix $NFLX or YouTube $GOOG on your TV. Basically, it turns your dumb TV into a smart one. Roku also have their own channel, the Roku Channel, and they license their technology to TV makers to have Roku TV already included in the TV. The technology, however, is not proprietary and any big competitor can compete with Roku. Their main competitors are Apple $AAPL with Apple TV, Google $GOOG with Goolge Chromecast and Amazon $AMZN with Amazon Fire TV. But Roku is still industry leader.

The revenues and gross profit of Roku has been growing at a fast rate over the last years but they are not profitable yet. They are spending much on research and development. They are now moving into services using a same strategy that Apple is doing. Making hardware is costly and it has a low margin. It is better for them to work on their platform. There, they can sell ads and other services.

Roku is one of the rare companies without any long-term debt. The number of shares outstanding of Roku has been increasing over the last years as they have a big stock compensation program just like Amazon and Salesforce $CRM . The advantage that Amazon and Salesforce has is that their stock price are always increasing and shareholders are not unhappy with the share dilutions. You should also know that Roku CEO and Chairman, Anthony Wood who is also the founder of Roku, owns class B shares which give him a 10-1 voting rights over class A shares(the one we can buy). It may be difficult to fire him if he underperforms.

This 40% fall has been predictable. Now, Roku has a market cap of $12 billion. In my opinion, this is still expensive. Even if the company keeps growing at the same rate, eventually it will plateau. The risk is also big with the competitors. Even if Roku succeeds and Apple or Amazon or Google fails, why should you pay $12 billion today for a possible $5 billion that they could make in the future. Don't pay for the future, now. You need to always discount the future.

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