Roku’s stock drops after long-time bullish analyst downgrades, citing valuation

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Shares of Roku Inc. fell 3.6% in premarket trading Thursday, to extend their pullback from a record close earlier this week, after KeyBanc Capital analyst Justin Patterson backed away from his long-time bullish stance, citing concerns over valuation. Patterson cut his rating to sector weight, after being at overweight since April 2018.” He said recent data suggests at least 2% upside to third-quarter revenue expectations, and a potential acceleration in the fourth quarter, given Peacock ad strength. And given the inevitable launch of HBO Max on Roku, Patterson believes revenue expectations for 2020 and 2021 is “too low.” The reason for the downgrade, however, is that Patterson believes positive fundamentals are already reflected in the stock price given the recent rally, and the risk-versus-reward scenario is now balanced. The stock closed at a record $238.57 on Tuesday, and has run up 51.1% over the past three months through Wednesday, while the S&P 500 has gained 8.1%. “We believe this signals that investors have priced in positive news, and that Roku needs new catalysts to outperform,” Patterson wrote in a note to clients.
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