• It was not a good first quarter for Roku (ROKU), which fell 45%.
• While earnings in February didn’t help, there were many positives to lean on.
• Secular growth in streaming remains strong and Roku remains a leader.

I will be the first to admit that it has been a brutal ride for Roku (NASDAQ:ROKU). But I would be far more alarmed if it was only ROKU stock that was getting buried in this market action. Instead, almost all growth stocks have been under pressure.

Short of a few strong cybersecurity stocks, growth stocks in the tech sector have been decimated. Shares of Roku are only slightly off the lows, while the stock suffered a peak-to-trough decline of 75% from its highs in the summer of 2021.

However, the bigger concern has less to do with the company and more to do with the overall market. What I mean is, we’re in the midst of a bear market for these stocks!

Nonetheless, should growth stocks remain under pressure, it’s anyone’s guess as to whether a low is in or if more downside is imminent. That said, let’s take a closer look at ROKU stock and why it still is one of the best stocks for 2022.

Fear Aside, Roku Is Still Doing Well

ROKU stock may be struggling. But as far as its business goes, things are not as bad as the stock price would indicate.

Even though the company has missed on revenue estimates in two-straight quarters, I don’t think that’s the end of the world and I feel that way for three reasons:

• Covid-19 accelerated the move to streaming video. Regardless of opinion, this is a fact.
• The company’s margins, cash flow and gross profit continue to move in the right direction.
• Analysts were way behind on estimates after the initial Covid spike. Then they were too optimistic. Yet, viewership and users continue to climb at a strong pace.

In the latest quarter Roku reported in February, analysts were expecting 38% revenue growth when Roku delivered “just” 33% growth. Then, Roku guided for Q1 revenue of $720 million vs. expectations for $748.5 million. EBITDA came up short too.

One problem? The company is being squeezed by supply chain woes, something it’s been reluctant to pass on to consumers.

However, there were positives. Active accounts reached 60.1 million, a 17.4% year-over-year (YOY) increase. Streaming hours also increased to 73.2 billion, up 14.4 billion YOY, while average revenue per user (ARPU) climbed 43% to $41.03.

Analysts now expect 25.2% revenue growth this year and 32.9% growth in 2023. Too optimistic? Maybe. But if that pans out, Roku stock should benefit. Now, look at the way operating cash flow has trended.

You have to remember, this is not just a hardware maker. Roku is a platform that generates ad revenue and a fee from streaming services. The more streaming hours through its platform, the more money there is for Roku. That’s a secular trend that was in play before Covid and will continue after.

Trading Roku Stock

Speaking of streaming before and after Covid-19, does it make sense that Roku is trading back down to pre-Covid levels? Remember, in 2019 shares were trying to breakout over $175 after a solid Q2 report.

If the stock got back to just that level now, it would represent a gain of roughly 50% from current levels.

Given where Roku is now financially, it’s hard to believe it’s back to pre-Covid levels. Honestly. Just look at last quarter vs. the August quarter in 2019:

The reality is, we’re back to pre-pandemic levels yet the business is years and years ahead — and down notably from September 2019. Admittedly, the market is a forward-looking mechanism. However, at times it trips and stumbles over short-term hurdles.

The hurdle, in this case, is the bear market in growth stocks. Roku stock already suffered an 80% peak-to-trough decline. That doesn’t mean it can’t fall 85% or 90% from the high, but as far as “high zones” and “low zones” go, the stock is near the latter.

Contest aside, I’d wait for a retest of the lows. Nibbling near $100 likely gets aggressive, speculative bulls a solid cost-basis for a long-term hold. If we really flush lower, the mid-$70s could be in play. However, it’s hard to imagine the pandemic low of near $58 being in play given all the progress this company has made.

On the upside, it’s pretty simple: Roku stock needs to clear the 10-week moving average.

On the date of publication, Bret Kenwell held a long position in ROKU. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.