The market can be cruel to potentially promising stocks. An investment can also seem overvalued, even if the shares have already taken a big hit. There are traps, bad bets, and tricks everywhere, but sometimes there is more than meets the rolled eye.
Investors may be down on Roku (NASDAQ: ROKU) and Crocs (NASDAQ: CROX) after they came up short this week with fresh financials. However, they're not tricks. In the spirit of Halloween on Thursday, let's see why these three sliding stocks might actually be treats for shareholders.
1. Roku
Shares of Roku initially tumbled after the company posted third-quarter results following Wednesday's market close. The pioneer of streaming video operating systems exceeded expectations on both ends of the income statement, topping $1 billion in quarterly revenue for the first time. However, lukewarm guidance cooled down one of the market's hottest stocks over the past two months.
Roku is bracing investors for revenue growth slowing slightly in the current quarter, but other metrics were more problematic. The $465 million in gross profit and adjusted EBITDA of $30 million it's forecasting fall short of where analysts were perched. Roku is also warning that it will stop reporting the number of streaming households it's serving as well as average revenue per user, two widely watched metrics. It's always ominous when a company takes a turn for the tight-lipped, but Netflix planted the flag earlier, when it announced that it will abandon the reporting of subscriber numbers in 2025.
Image source: Getty Images.
Let's revisit this week's report that the market is hating. Revenue rose 16% to $1.06 billion for the three months ending in September, its third strongest year-over-year growth in more than two years. The news on the bottom line was even better, as its operating loss of $35.8 million is its strongest showing since the first quarter of 2022. Its trailing free cash flow contracted sharply from where it was three months ago, but this isn't a company shifting in reverse.
Roku will continue posting its full slate of financial numbers. It will also keep reporting the hours streamed on its platform. There will no longer be easy math to figure out if engagement or monetization per household is improving, but investors will know the direction that it's heading in broader terms.
Roku continues to dominate a lucrative and growing market. Wednesday's report doesn't change that. Platform revenue growth may slow here, but it's not likely to get in the way of Roku returning to profitability sooner than Wall Street's target of 2027. The markdown is an opportunity for investors. A deeper markdown in the coming weeks -- for a stock that had soared 60% since bottoming out two months ago -- is an opportunity for a potential acquirer. Roku is holding a strong hand here.
2. Crocs
Another stock that got stomped on this week during earnings season is Crocs. The company behind the distinctive footwear tumbled 19% on Tuesday after disappointing investors with its latest financials.
Crocs was guiding investors to expect flattish year-over-year revenue growth. It actually landed a bit ahead of its outlook. Its adjusted profit of $3.60 a share was a big beat, the third time in a row that Crocs has come through with a double-digit percentage beat on the bottom line.
Fresh guidance for the current quarter was not kind. The Heydude shoe line that it acquired for $2.5 billion continues to be an ankle biter, but now even its namesake resin footwear is showing signs of a slowdown heading into the holiday shopping season. A big plus for Crocs here is that it expects to generate between $12.82 and $12.90 in earnings per share this year. The sell-off prices the stock at just 8.5 times the low end of that profit range. There are new concerns for its flagship products, and Heydude doesn't appear any closer to a turnaround. However -- hey, dude -- the stock is pretty cheap in an otherwise inflated market right now.
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Rick Munarriz has positions in Crocs, Netflix, and Roku. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool recommends Crocs. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
