THE S&P500 is up 14% in 2024. The index’s strong start to the year means it has become increasingly difficult to find reasonably priced stocks. But some Wall Street analysts see Uber Technologies (NYSE: UBER) And Year (NASDAQ:ROKU) as undervalued.
Brian Nowak at Morgan Stanley has set a bullish price target that puts Uber at $120 per share by May 2025. This forecast implies a 71% upside from its current price of $70 per share.
Ark Invest’s Nicholas Grous and Andrew Kim presented a valuation model that puts Roku at $605 per share by December 2026. This forecast implies a 1,000% upside from its current price of $55 per share.
Spoiler alert: Both price targets seem overly ambitious, but Uber and Roku are still worth considering. Here’s what investors should know.
Uber: 71% implicit increase by May 2025
Uber divides its business into three segments: (1) its mobility platform connects users to ride-sharing services and other transportation; (2) its delivery platform allows consumers to order food, groceries and alcohol from local restaurants and retailers; and (3) its freight platform connects shippers to carriers.
According to Bloomberg, Uber is the leader in carpooling in the United States, with 76% market share, and second in catering. food delivery (behind PorteDash), with a market share of 23%. The same pattern applies globally. Uber has an important role ditch not only by its size, which gives the company a data advantage that continually improves its ability to dispatch and route drivers, but also by cross-platform synergies.
To elaborate, Uber uses cross-platform promotions to drive mobility users to the delivery app and to drive delivery users to the mobility app. Customer acquisition costs associated with cross-platform promotions are approximately 50% lower than other paid marketing channels, and Uber’s efforts are paying off. It appears that 31% of first delivery trips come from the mobility app, and 22% of first mobility trips come from the delivery app.
Uber reported strong financial results for the first quarter. Revenue rose 15% to $10.1 billion, driven by strong booking growth in its mobility and delivery services, offset by a decline in freight bookings. Some investors panicked because the company posted a loss of $654 million under generally accepted accounting principles (GAAP), much worse than its loss of $157 million a year earlier. But that was due to a $721 million headwind from unrealized investment losses, outside of which Uber was actually profitable.
Wall Street expects Uber to grow its sales 14% annually through 2027, but that estimate leaves room for upside. The ride-hailing and online food delivery markets are expected to grow 16% and 19% annually, respectively, through 2030. Uber also has adjacent advertising opportunities with both platforms, a business segment that reached $900 million in annualized revenue in the fourth quarter.
Uber currently trades at 3.8 times sales, a reduction from the five-year average of 4.3 times sales and a reasonable price to pay, given its growth prospects. Shareholders shouldn’t expect a 71% return by May 2025, but patient investors should consider purchasing a position in this growth stock today.
Roku: implied increase of 1,000% by December 2026
Roku helps streaming services and advertisers engage consumers. It monetizes subscription services by processing transactions through Roku Pay and ad-supported services by selling inventory and ad technology software. It also sells inventory for its own ad-supported service, The Roku Channel.
Roku operates the most popular streaming platform in the United States, based on streaming hours, and Roku OS is the best-selling TV operating system in the United States and Mexico. Additionally, The Roku Channel recently surpassed Peacock by Comcast and Max by Discovery of Warner Bros. to become the seventh most popular streaming service in the United States. The Roku channel accounted for 3.9% of streaming time in May 2024, up from 3% in January 2024.
Roku reported encouraging financial results for the first quarter, beating expectations for both revenue and bottom line. Revenue rose 19% to $882 million, and its GAAP loss of $51 million was an improvement over last year’s loss of $194 million. Additionally, Roku generated positive free cash flow of $427 million, compared to negative free cash flow of $448 million the year before.
Looking ahead, the investment thesis is simple. According to JPMorgan Chase, streaming media accounts for approximately 60% of TV viewing time among U.S. adults ages 18-49, but connected TV (CTV) ad spending represents only 30% of TV ad spending. Roku is well-positioned to benefit as advertisers correct this gap and shift their budgets to CTV.
Roku currently trades at 2.1 times sales, close to its all-time low of 1.7 times sales. Wall Street expects sales to grow 12% annually through 2027, making the current valuation look cheap. Additionally, the consensus estimate leaves room for upside. CTV’s ad spending in the U.S. is expected to grow 13% annually through 2027. That gives Roku a reasonable chance to grow sales faster than Wall Street expects, especially given its early success on international markets.
As for Ark’s price target, Roku shareholders have virtually no chance of a 1,000% return by 2026. Ark’s valuation model assumes sales will grow at an annualized rate of 65% over the next seven quarters. This would be an incredible acceleration compared to the current trajectory. However, patient investors should still consider purchasing a position in this growth stock.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennevine has positions in Roku. The Motley Fool holds positions and recommends DoorDash, JPMorgan Chase, Roku, Uber Technologies and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Mad Motley has a disclosure policy.
2 Undervalued Growth Stocks to Buy Before They Soar 71% and 1,000%, According to Some Wall Street Analysts was originally published by The Motley Fool
