Media-streaming technology expert Roku (ROKU 1.32%) has been a roller coaster ride for investors in recent years. Despite a 41% drop in stock price year-to-date (at the end of June 16), skimming just 2% above its 52-week low, Roku's potential for a massive turnaround can't be denied.
Down 89% from its all-time high in summer 2021, the big question is: could this undervalued stock make you a millionaire one day?
The million-dollar scenario
Let's consider a scenario where you have $100,000 to invest in Roku today.
If everything goes perfectly, and Roku experiences a 10x gain over the next 15 years, your investment would indeed turn into a million dollars. This would require a compound annual growth rate (CAGR) of approximately 16.5%. While this is ambitious, it's not entirely out of reach for a company with Roku's market potential and innovative edge in the media-streaming industry.
Roku is a serial innovator, always hungry for new markets. With increasing streaming hours and expanding advertising opportunities, Roku is positioned to capitalize on the growing digital media market in the long run. The sector's global growth must eventually slow down, but it's a long way away from worldwide saturation.
However, for this optimistic scenario to play out, Roku would need to continue its growth trajectory, fend off competition, and effectively monetize its user base. Can the company maintain its industry-defining performance for another decade and a half? Perhaps, but maybe not. This is a risky idea, if you define the investment's success as "a million dollars or bust."
Investing less? Here's what you need to know
If you have less than $100,000 to invest, becoming a millionaire with Roku becomes even more challenging. The media-streaming market must remain in high-growth mode for longer, with Roku in a leading long-term position. While Roku's current valuation metrics like a price-to-sales (P/S) ratio of 2.2 and a price-to-free-cash-flow (P/FCF) ratio of 18.4 suggest that the stock is undervalued, Roku's long-term success hinges on several external factors.
Realistically, a diversified investment strategy might be more prudent for investors with smaller capital. Building a portfolio with a mix of growth stocks and stable investments like the leading S&P 500 trackers can provide a balanced approach, reducing risk while still offering substantial growth potential.
Mid-term potential: double or triple your money
Can Roku double or triple in value within the next five years? This scenario seems more plausible. The stock's current undervaluation could lead to significant gains as the digital media market recovers. A return to robust advertising spending and continued growth in streaming hours could act as catalysts for Roku's stock price to surge.
A successful mid-term strategy with Roku would require closely monitoring market trends and being prepared to capitalize on short-term opportunities.
This approach, however, differs from the slow and steady wealth-building process championed by investing legends like Warren Buffett and John Bogle. While Roku's returns could be impressive in the short to mid-term, relying only on a quick Roku burst is a risky tactic. And you need a much larger starting investment to reach a million dollars this way.
Image source: Getty Images.
Conclusion: Set realistic investment goals
Investing in Roku offers exciting potential, but it's crucial to set realistic goals based on your investable capital and time horizon. While a 10x return in 15 years is a compelling dream, it requires a perfect storm of pleasant market conditions and crisp execution from the company itself. More modest expectations, such as doubling or tripling your investment in the mid-term, are more attainable given Roku's current position and market potential.
Roku won't be the golden ticket to becoming a millionaire overnight. However, its undervalued stature and robust growth prospects make it a compelling component of a diversified investment strategy. By balancing modest investments in high-growth stocks like Roku with most of your capital parked in more stable options, you can build a resilient portfolio poised for long-term success.
On Wall Street, slow and steady usually wins the race. While Roku's potential for impressive returns is real, it's essential to temper expectations and build a strategy that aligns with your financial goals and risk tolerance. Whether you're aiming for a quick surge or a gradual climb, Roku could play a significant role in your investment journey -- just make sure your eyes are wide open and your strategy is sound.
