Few stocks have suffered as much from the bear market as Roku (ROKU -3.80%). After peaking at $490 per share in July 2021, it has lost around 85% of its value. For those who bought this stock near the top, it may take years to recoup those losses.

But despite Roku’s flaws, investors may have good reason to start loving the title again. While investors should remain aware of its challenges, they should also consider secular trends that could bolster the streaming service stock over the long term.

Why Some Investors May Not Like Roku Stock

Admittedly, Roku’s business climate and performance look discouraging. The challenges came at a time when supply chain constraints were making it harder to bring its Roku-equipped streaming players and smart TVs to market.

Moreover, despite all the attention given to its streaming platform, it derives the bulk of its revenue from advertising. This bodes ill, as high inflation and a sluggish economy have discouraged spending, leaving businesses with fewer reasons to buy ads.

The advertising downturn is so severe that Roku is only predicting total net revenue growth of 3% in the third quarter to $700 million, from 18% in the second quarter and 56% in calendar year 2021 Slowing earnings growth and the bear market contributed to the massive drop in the stock price.

In addition, this drop in share price reduced its market capitalization to less than $10 billion. This puts Roku in a weakened position. Peers such as Amazon, Alphabet, Apple, and Samsung also compete in this industry. The liquidity position of these companies alone is many times the value of all Roku shares. If these peers are motivated, they could invest enough to claim Roku’s market share or the company itself.

Ongoing Roku Improvements

However, investors should also wonder why such a small company has gained traction over these much larger peers. First, it helped CEO Anthony Wood work for Netflix when building Roku, which reinforced the first mover advantage that Roku has built in this market. According to Conviva, Roku continues to benefit as it holds just under 31% of the global market share, well ahead of the second-largest streamer, Amazon, at 16%.

Additionally, streaming sticks are affordable and work well. Its Roku Express HD streaming player costs just under $30 and has averaged 4.7 out of five stars from more than 166,000 reviews on Amazon. That compares well to $179 for Apple’s streaming player.

Additionally, despite launching the Roku Channel (which is not a paid service), Roku has mostly served as a neutral player among paid streaming services. This reduces the risk of bias towards a specific paid streaming service.

His actions have led to an ecosystem that continues to attract advertiser interest and attract traditional television advertising dollars. For the 2022-23 season, he secured deals with all seven major agency holding companies, resulting in more than $1 billion in commitments.

And contrary to expectations, this audience continues to grow even as consumers coming out of lockdown are spending less time online. Roku reported 63.1 million active accounts in Q2 2022, up 14% from year-ago levels. Average revenue per user (ARPU) also increased by 21% during this period to $44.10.

Investors should also remember that this happened during a “slowdown” in advertising. This means that growth could pick up as the economy and, by extension, advertising spending begins to recover.

Finally, despite these improvements, the stock continues to become more affordable. Its price-to-sales (P/S) ratio has fallen to 3, down from 33 at the start of 2021.

Consider Roku’s Stock

Indeed, tiny revenue growth amid an economic downturn and supply chain constraints bodes ill for Roku. However, upon closer examination, neither the trend away from online business nor economic hardships have halted Roku’s growth. In fact, with nearly 31% of the streaming market, Roku has made itself the biggest beneficiary of a centuries-old move away from traditional TV. As Roku recovers, these factors make it increasingly likely that this top growth stock will be a screaming buy.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Will Healy holds positions at Roku. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple and Roku. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.