The U.S. stock market has sailed higher over the past year, but Wall Street still sees buying opportunities. JPMorgan analyst Cory Carpenter has given Roku (ROKU -10.29%) a target of $100 per share, implying a 56% upside from its current price. Morgan Stanley analyst Keith Weiss has set a bull-case target of $485 per share for Salesforce (CRM 0.42%), implying a 60% upside from its current price.
Investors should always view price targets with skepticism, especially when they come from individual analysts. But Roku and Salesforce warrant further consideration. They have strong positions in their respective markets, and both stocks trade at reasonable valuations compared to future growth prospects.
Here's what investors should know.
1. Roku
Roku reported disappointing financial results in the fourth quarter. Revenue increased 14% year over year to $984 million, but average revenue per user declined 4% to $39.92. Management attributed that to strong active account growth in international markets, where the company is still focused on building scale rather than monetization. But it could also signal a loss in pricing power due to competition from rival streaming platforms like Amazon and Netflix.
Meanwhile, the company reported a generally accepted accounting principles (GAAP) loss of $0.55 per share, but Wall Street anticipated a slightly smaller loss of $0.52 per share. Management also guided for a wider-than-expected loss of $0.90 per share in the first quarter. Even so, Roku remains confident in its ability to accelerate sales growth and achieve profitability in the future, and its strong competitive position in the growing connected TV (CTV) advertising market supports that conviction.
Roku is the leading streaming platform in the U.S. and Mexico as measured by viewing hours, and Roku OS was the best-selling TV operating system in the U.S., Canada, and Mexico last year. Additionally, its ad-supported streaming service, The Roku Channel, is the ninth-most-popular streaming service in terms of viewing time. That puts it ahead of Paramount+ by Paramount Global.
In short, Roku is well positioned to benefit as streaming media displaces traditional pay TV. That is especially true in its largest market, the U.S., where CTV ad spending is projected to grow at 15% annually through 2027, according to Statista. Roku has a good shot at matching that pace with its sales growth, which makes its current valuation of 2.6 times sales look quite reasonable.
Investors should monitor average revenue per user in the coming quarters. Continued declines would further support the idea that Roku is losing pricing power. But investors who are comfortable with that risk should consider buying a small position in this stock today, with the understanding that a 56% return in the next 12 months is by no means guaranteed. Revenue growth would need to accelerate and profitability would need to improve greatly for that outcome to be probable.
2. Salesforce
Salesforce reported solid fourth-quarter financial results, beating expectations on the top and bottom lines. Revenue increased 11% year over year to $9.2 billion due to particularly strong growth in data integration and analytics solutions. Meanwhile, non-GAAP (adjusted) net income increased 36% to $2.29 per diluted share as the company continued to focus on margin expansion.
In addition, management said its remaining performance obligation (RPO) increased 17% year over year in the fourth quarter. RPO measures contracted revenue that has not yet been recognized, making it a good indicator of sales pipeline momentum. The fact that RPO is climbing faster than sales hints at a possible acceleration in top-line growth in the coming quarters. Either way, investors have good reason to be optimistic.
Salesforce is the market leader in customer relationship management (CRM) software. Its platform includes applications that help sales, marketing, commerce, and customer service teams work more productively. Salesforce also sells tools for analytics, application development, and data management, and it recently launched a generative artificial intelligence assistant called Einstein Copilot that can answer questions, summarize content, and surface insights.
The broad scope of the Salesforce CRM platform affords the company a considerable advantage, creating multiple ways to land new customers and expand those customer relationships over time. CFRA analyst Angelo Zino recently wrote that Salesforce offers "the most comprehensive and feature-rich" CRM platform for medium-sized businesses and large enterprises.
With that in mind, Grand View Research estimates that CRM spending will increase by 14% annually through 2030. Salesforce is arguably better positioned to benefit from that tailwind than any other software vendor. Wall Street expects the company to grow revenue at 10% annually over the next five years. But I think that estimate leaves room for upside if Einstein Copilot becomes a material revenue stream.
In any case, the current valuation of 8.6 times sales is tolerable compared to the sales growth forecast by Wall Street analysts. Investors should consider buying a small position today, but not with the expectation of a 60% return in the next year. Salesforce is best viewed as a long-term investment, meaning investors should plan to hold for at least three to five years.
