Over the past few years, I’ve been a big fan of Roku (NASDAQ:ROKU). I’ve written positively about ROKU stock during its good times in the second half of 2020 and early 2021, its bad times at the beginning of the coronavirus pandemic and in the second half of 2021, and its mediocre times in early 2020. That’s because I’ve always believed that the company has a very good product, generates impressive financial results and has a strong first-mover advantage in a rapidly growing, highly lucrative sector.

Since the company’s fundamentals remain strong, the skeptics’ worries are overdone. What’s more, the stock’s valuation has become much more attractive over the past year. I am quite upbeat on the long-term outlook of ROKU stock.

Roku’s Fundamentals Remain Very Good

Due to the easing of the pandemic and supply chain issues, Roku’s growth has declined. That deceleration, along with big investors’ aversion to growth stocks because of macro issues, is responsible for the poor performance of ROKU stock in the past 11 months or so.

But all of those factors are proverbial bumps in the road and trees for Roku, not walls or forests. In other words, in the big picture, the company’s recent financial results and fundamental outlook remain very strong.

Roku is the streaming leader in the United States. In September 2021, it was estimated by eMarketer that a third of the U.S. population used a Roku device. By the end of that year, they predicted nearly 52% of all connected TV users in America, or 111.7 million people, would be using Roku devices.  In 2025, Roku’s monthly U.S. user base is expected to reach 126.4 million, up 13.2% from the end of last year.

In general, as streaming becomes more and more popular in America, Roku’s top and bottom lines should continue to increase. Indeed, as I pointed out in my November column on ROKU stock, even with the supply chain constraints that hindered the company’s ability to sell its hardware, “Q3 net revenue jumped 51% from a year ago, while its trailing 12-month average revenue per user climbed 49% and surpassed $40 on a trailing 12-month basis for the first time.”

Moreover, third-quarter net income soared more than 400% year over year, reaching $68.9 million. And unlike many other companies, Roku does not cover a high percentage of its expenses with loads of share issuance and share-based compensation. The company only issued roughly $2.3 million of stock in Q3.

As far as valuation goes, ROKU stock is changing hands for just six times analysts’ average 2022 sales estimate. Compare that to the valuation of another American disruptor that, like Roku, is facing some tough competition in the U.S. and abroad: Tesla (NASDAQ:TSLA). The electric vehicle maker has a forward price-to-sales ratio of 14.

ROKU Stock Skeptics Are Misguided

On Jan. 5, Atlantic Equities started coverage of ROKU stock with an “underweight” rating. The firm does not expect the biggest TV makers to partner with Roku and predicts the company’s growth will slow.

But Roku is continuously adding new TV makers to its list of partners. For example, Roku announced it had made deals with six TV manufacturers, including  Philips, JVC and Westinghouse, in 2021 and the initial weeks of 2022. Sharp (OTC:SHCAY) also recently begun partnering with the company.  Separately, Roku concluded new partnership agreements with TV manufacturers in the United Kingdom, Canada and Mexico.

Moreover, there’s a very good chance Roku’s partners, old and new, will gain market share because of the strength of Roku’s brand.

On Dec. 15, Morgan Stanley cut its price target on ROKU stock to $190 from $250 due to its worries about the company’s declining growth and concerns about gross margins.

However, auto advertising is likely to recover as the chip shortage eases, while many American consumers will probably watch more TV this winter as the novelty of going out following the lockdowns fades. And the easing of Roku’s supply chain issues, its new partnerships and the increased popularity of streaming should boost its growth this year. Taken together, these factors are likely to raise Roku’s growth and margins in 2022.

The Bottom Line on ROKU Stock

Roku’s fundamentals and outlook remain strong, while the shares are now undervalued to a great extent. As a result, ROKU stock is a buy for long-term investors.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.