Roku (ROKU) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.
Analysts' growing optimism on the earnings prospects of this video streaming company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
Consensus earnings estimates for the next quarter and full year have moved considerably higher for Roku, as there has been strong agreement among the covering analysts in raising estimates.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The company is expected to earn $0.56 per share for the current quarter, which represents a year-over-year change of +250.0%.
The Zacks Consensus Estimate for Roku has increased 8.64% over the last 30 days, as two estimates have gone higher while two have gone lower.
Current-Year Estimate Revisions
For the full year, the earnings estimate of $2.75 per share represents a change of +366.1% from the year-ago number.
The revisions trend for the current year also appears quite promising for Roku, with four estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 17.14%.
Favorable Zacks Rank
The promising estimate revisions have helped Roku earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
While strong estimate revisions for Roku have attracted decent investments and pushed the stock 6.5% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.
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Roku, Inc. (ROKU): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).