Trader: Roku can easily hit $60, fundamentals remain strong

  • Roku soared 21.31% on Thursday, its best day in more than 8 months, after beating top and bottom line estimates for the second quarter.
  • HPM Partners’ Jim Lebenthal, who owns the stock, is staying long since he likes the company’s subscription-based model and believes the “fundamentals support going higher.”
  • The stock is up more than 60% in the last three months.

Shares of Roku soared more than 20% on Thursday to $57.32 after the company topped second quarter revenue estimates and gave upbeat guidance for Q3. HPM Partners' Jim Lebenthal owns the stock and despite the pop, he's staying long since he believes Roku will soon top $60.

On Thursday's "Halftime Report" he argued that the stock looks attractive from both a technical and fundamental perspective. "[I]f you look at the chart this thing has clearly broken out...this is the point where the analysts are going to come out of the woodwork and just pile on upgrading it," he said.

For the second quarter the California-based company posted $156.8 million in revenue compared to Street estimates of $141.1 million. The company added 22 million users -- a 46% increase compared to a year earlier -- and time spent on the device clocked in at 5.5 billion hours.

Lebenthal's bull case for the stock centers on the company's subscriber-based business model, which means that once a customer buys the streaming device, the company will continue to profit from that purchase in the form of advertising and services revenue.

"This is a great model where you sell these physical players at a low margin but you build up this base of subscribers that give you the higher margin services revenues," he said on "Halftime Report."

As competition in the streaming world intensifies -- Apple has Apple TV, Alphabet has Chromecast and Amazon has Fire TV -- a key performance indicator is average revenue per user.

In its Q2 shareholder letter Roku noted that "[I]ncreasing engagement with our platform and continued shift to ad supported content is creating new ways to drive Platform revenue and ARPU growth...We've doubled ARPU over the last two years, driven primarily by advertising, with the majority of ad revenue coming from video ads we serve on ad-supported channels, and we also continue to see strong audience development and brand sponsorship ad growth." For the quarter Roku reported a record $16.60 ARPU, which was a 48% increase year-over-year.

But not everyone believes in the long-term momentum of Roku. The stock has a 16.86% short interest, which means there are a number of traders who believe it is heading lower. At times it's also been a particularly volatile stock. It dropped 17.71% on February 22, for example, despite reporting fourth-quarter results that topped analyst estimates.

But Lebenthal believes the company's "fundamentals support going higher here" and that it's not too late for investors to get in on the name.

"I think it's going to go above $60 pretty easily here," he said.