Roku, Inc.

ROKU Details

Roku, Inc. (NASDAQ: ROKU) is the most popular streaming platform in the United States. It streamed 18.0 billion and 14.8 billion hours in the third fiscal quarter of FY21 and FY20, respectively. It makes money through two revenue streams: the platform and the player segment.

Latest News:

• Foraying in Adult Animation: ROKU announced on January 20, 2022, that "DOOMLANDS" will debut on The Roku Channel on January 28, 2022. "DOOMLANDS" is the company's first adult animated series, created by the irreverent imagination of Josh O'Keefe.

Q3FY21 Results:

• Growth in Top Line: Total revenues climbed by 50.54% to USD 679.95 million in Q3FY21 (ended September 30, 2021) from USD 451.66 million in Q3FY20, owing to more substantial advertising revenue as well as higher content distribution and related transactional revenue, including Premium Subscriptions.
• Boost in Profitability: ROKU reported an increase in net income to USD 68.94 million in Q3FY21 from USD 12.95 million in Q3FY20.
• Healthy Balance Sheet: As of September 30, 2021, the company had cash and cash equivalents of USD 2.18 billion and total debt of USD 91.09 million.
• Improvement in ARPU: ROKU's average revenue per user (ARPU) increased to USD 40.10 as of September 30, 2021, up from USD 27.00 as of September 30, 2020.

Source: Company's Filing

Key Risks:

• Seasonality Risk: ROKU's sales and gross profit are typically most spectacular in the fourth quarter of each fiscal year, accounting for a significant percentage of the total net income due to more extravagant consumer spending and more advertising during the holiday seasons. As a result, any failure to meet planned fourth-quarter sales, whether due to a drop in the efficiency of its promotional campaigns, supply chain interruptions, or other circumstances, would have a significant impact on its full-year performance.

Outlook:

• Q4FY21 Estimates: ROKU forecasts to generate revenue of USD 885 – 900 million in Q4FY21, along with a gross profit in the range of USD 380 – 390 million.
  

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

Technical Summary Analysis:

ROKU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ROKU's share price has fallen 34.83% in just the past month and is currently leaning towards the 52-week low of USD 139.47. The stock is currently trading below its 50 and above 200 DMA levels, and its RSI Index is at 27.92, indicating an oversold zone. We have valued the stock using the EV/EBITDA multiple based relative valuation methodology and arrived at a target price of USD 188.25 as of January 25, 2022.

Considering the major correction in the stock price in a short span, growth in topline and bottom line performance, proven track record, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 152.19, down 3.26% as of January 25, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending on risk tolerance, investors may consider unwinding their positions in an individual stock once the estimated target price is reached.

Cognex Corporation

CGNX Details

Cognex Corporation (NASDAQ: CGNX) is a global manufacturer and marketer of machine vision systems that help companies automate their production and distribution processes. It also offers maintenance and support, consultation, and training services. Machine vision systems and sensors, vision software, and image-based barcode scanners are among CGNX's core products.

Latest News:

• Quarterly Dividend: On November 04, 2021, CGNX declared a quarterly dividend of USD 0.065 per common share (representing sequential growth of USD 0.005 per share), paid on December 03, 2021, to shareholders of record on November 19, 2021.

Q3FY21 Results:

• Growth in Revenue: The company reported YoY growth of 13.45% in revenues to USD 284.85 million in Q3FY21 (ended October 03, 2021) from USD 251.07 million in Q3FY20 (ended September 27, 2020), attributable to61% YoY growth in Standard products and services segment.
• Decline in Profitability: CGNX reported a decrease in net income to USD 78.90 million in Q3FY21 vs. USD 87.51 million in Q3FY20.
• Healthy Balance Sheet: As of October 03, 2021, the company had cash and cash equivalents (including marketable securities) of USD 392.59 million and no outstanding debt.

Key Risks:

• Customer Concentration Risk: The majority of CGNX's revenue comes from a limited number of customers. For example, the top two customers accounted for a substantial amount of the company's revenue in FY20. As a result, losing any of these critical customers could harm the company's bottom line.
• Stiff Competition: CGNX competes in a highly competitive machine vision market, with significant players offering direct price competition. Should this trend continue, it could adversely impact the company's financials.

Outlook:

• Q4FY21 Estimates: As of Q3FY21, CGNX expects to generate revenue of USD 210 – 230 million in Q4FY21, along with a gross margin in the low-70% range.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CGNX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

CGNX's share price has decreased 25.96% in the past nine months and is currently leaning towards the lower band of its 52-week range of USD 63.96 to USD 101.82. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 28.78, indicating an oversold zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 79.11.

Considering the company's growth prospects, solid margins, associated risks, steady dividend yield, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 65.30, down 3.56% as of January 25, 2022, 11:40 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.