×

Roku, the best-performing tech IPO this year may have just hit a wall

An analyst's stock downgrade had investors hitting the sell button for Roku.

Shares of Roku, which manufactures and ships its own streaming media hardware, tanked 13 percent on Tuesday. In Wednesday's premarket, it was down about 5 percent, at $35.14 per share.

The stock had surged 58 percent since its initial public offering in late September, making it the best tech IPO of the year and third best of 2017, according to Renaissance.

But on Tuesday, Oppenheimer analyst Jason Helfstein wrote in a note that the stock was "trading on non-fundamental factors" and excessively valued as a result. Helfstein downgraded Roku to an underperform rating, and gave it a price target of $28 — a 20 percent plunge from where the stock is trading right now.

Chantico Global CEO Gina Sanchez also weighed in on the view that the stock may have run too far, too fast.

"I think one of the reasons that a lot of analysts are taking a hard look at Roku is not only has it done well and delivered, but the liabilities on its balance sheet are actually growing quite quickly," she said Tuesday in a "Trading Nation" segment on CNBC's "Power Lunch." "So you have to pay attention to the total company right now, and we're still so early in the game [to determine] whether or not this company is going to be successful."

Roku more than doubled its share price after reporting earnings on Nov. 8. Even with Tuesday's plunge, the stock is still up 97 percent since the earnings report.

"Watching a company grow on the liability side means that they're sort of piling up cash to look good for their earnings reports, but not necessarily paying their liabilities," she added as a warning.

Wall Street analysts polled by FactSet tend to agree that the stock has run a little too far, too fast. The average price target by the five analysts who cover Roku is $27.20 a share. Three have hold ratings, one has a sell rating and two say buy.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect