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Is it Time to Sell Your Roku Inc. (ROKU) Shares?

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Alger, an investment management firm, published its “Alger Spectra Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. During the third quarter of 2021, the largest portfolio sector weightings were Information Technology and Consumer Discretionary. The Health Care sector was the largest sector overweight and Consumer Staples was the largest sector underweight. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Alger, in its Q3 2021 investor letter, mentioned Roku Inc. (NASDAQ: ROKU) and discussed its stance on the firm. Roku Inc. is a Los Gatos, California-based video streaming company with a $42.9 billion market capitalization. ROKU delivered a -3.05% return since the beginning of the year, while its 12-month returns are up by 43.72%. The stock closed at $321.88 per share on October 22, 2021.

Here is what Alger has to say about Roku Inc. in its Q3 2021 investor letter:

"Long position Roku, Inc., was among top detractors from performance. Roku is a leading connected TV streaming platform company whose technology has helped change the way consumers consume entertainment. The coronavirus pandemic accelerated adoption of streaming content and we believe the company’s market share gain has been durable. Advertising buyers are reallocating spending toward Roku to reach this growing segment of customers who no longer watch TV via traditional cable to broadcast services. Roku's high unit volume growth is supported by distribution agreements with major media companies that are organizing content distribution strategies around streaming. In our view, the agreements are strong evidence that Roku is now understood to be an increasingly important part of the connected TV ecosystem. Roku’s revenues grew over 100% in the recently reported quarter, but the shares reacted negatively to lower-than-expected active account additions and hours of content streamed as Roku lacked the positive benefit of last year’s COVID-19 lockdowns. With the widescale administration of COVID-19 vaccines and the end of lockdowns, many individuals have increased their traveling and outdoor activity, which has created a headwind for indoor viewing of connected TV offerings."

Roku, Movie
Roku, Movie

Photo by Petter Lagson on Unsplash

Based on our calculations, Roku Inc. (NASDAQ: ROKU) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ROKU was in 61 hedge fund portfolios at the end of the first half of 2021, compared to 63 funds in the previous quarter. Roku Inc. (NASDAQ: ROKU) delivered a -32.04% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.