Billionaires Buy a Brilliant Growth Stock That Has Partnered With Amazon

A handful of billionaire hedge fund managers purchased shares of Roku (ROKU 2.84%) in the first quarter. Here's a look: Cliff Asness at AQR Capital Management added 467,005 shares of Roku, increasing his stake sixfold though it remains a small position. Stanley Druckenmiller at Duquesne Family Office bought 493,600 shares of Roku, starting a modest position that ranks among his 30 largest holdings. Chris Rokos at Rokos Capital Management bought 54,690 shares of Roku, starting a new and relatively small position. Steven Schonfeld at Schonfeld Strategic Advisors bought 68,886 shares of Roku, starting a new and relatively small position. Wall Street analysts generally agree Roku is undervalued. The median target price is $105 per share, which implies 28% upside from its current share price of $82. Here's what investors should know. Image source: Getty Images. Roku is the most popular streaming platform in North America Roku is the leading streaming platform in North America as measured by hours streamed, and Roku OS is the best-selling TV operating system in the United States, Canada, and Mexico. In addition, The Roku Channel is the fifth most popular streaming service in the U.S., behind only Alphabet's YouTube, Netflix, Walt Disney, and Amazon Prime Video. Put simply, Roku is ideally positioned to benefit as advertisers spend more on connected TV (CTV). Some readers may be surprised to learn traditional TV advertising is still a larger market than CTV advertising, and it's expected to be the larger market until 2028. But CTV ad spending is forecast to grow at 12% annually through 2029, according to eMarketer. Jeremy Deal, portfolio manager at JDP Capital Management, writes, "The Roku operating system and The Roku Channel are valuable assets that are highly under-monetized today." Deal says The Roku Channel alone is probably worth more than the entire company's current market value, implying Roku is materially undervalued today. Roku's recent partnership with Amazon could be a meaningful growth driver Roku in June announced an exclusive partnership with Amazon. While Amazon's demand-side platform (DSP) is not the only media buying platform with access to Roku inventory, it is the only one that can use a custom identity solution to recognize logged-in viewers across the Roku platform in the United States. A press release from Roku explains, "This exclusive capability enables advertisers to reach the same viewer deterministically across different streaming channels and devices." The upshot for investors is brands on Amazon DSP can now target and measure ad campaigns with greater accuracy. In other words, Roku is now a more compelling place for marketers using Amazon DSP to spend their advertising dollars. Roku highlighted the benefits following an early test of the integration, "Advertisers using this new solution reached 40% more unique viewers with the same budget and reduced how often the same person saw an ad by nearly 30%, enabling advertisers to benefit from three times more value from their ad spend." Roku stock trades at a reasonable valuation Roku currently trades at 2.7 times sales, a discount to the two-year average of 2.8 times sales. That valuation looks quite reasonable for a company whose revenue is forecast to increase at 12% annually through 2027, especially when that consensus estimate leaves room for upside. As mentioned, CTV ad spending is forecast to grow at 12% annually through 2029, and Roku is well positioned to benefit given its status as the most popular streaming platform in North America. To that end, its revenue could certainly grow faster than 12% annually with help from its Amazon partnership. Long-term investors should feel comfortable buying a small position in this growth stock today.