Fast forward, play, pause, rewind. It seems like this is exactly what Roku (ROKU 1.95%) stock has been doing. In a less than four-year stretch, it was skyrocketing. Now, it's a different movie.

As of this writing, shares trade 86% off their all-time high, a milestone that was achieved in July 2021. If that wasn't disappointing enough, the streaming stock has lost 25% of its value in 2024 (as of Nov. 22), when the overall market has soared.

Despite the pessimism, here are three reasons that you should considering buying Roku shares.

1. Secular trend

One of the most obvious reasons to invest in Roku is because it's in an advantageous position to benefit from the secular trend of streaming entertainment. In the tech world, the change in how people consume video entertainment has been hard to ignore.

Households continue canceling their traditional cable-TV packages in favor of the greater convenience, lower cost, and wider selection that streaming provides. As a seller of popular hardware devices and provider of a dominant streaming platform, Roku gains.

Roku also benefits from the sheer number of streaming services out there. It's clear that people want a single user interface to access all of their favorite shows and movies, which means that Roku adds tremendous value for its customers. This helps explain why third-quarter 2024 revenue of $1.1 billion was four-fold higher than in the same period five years earlier.

As viewership keeps migrating to streaming, the advertising dollars should as well. According to eMarketer, ad spending on connected TV in the U.S. will total $44 billion in 2026, up 300% from 2020. This is all happening while ad dollars directed to linear TV stay flat. Durable top-line growth could be on tap for Roku.

2. Financial position

Roku is still very much focused on growth, trying to acquire more and more households as its customers. This means that there continue to be sizable research and development and sales and marketing expenses.

In the past, Roku hasn't been consistently profitable. In 2022, it reported an operating loss of $498 million, and it posted a $710 million operating loss in 2023.

However, the management team is slowly making improvements to the bottom line. Cutting costs and driving efficiencies have been priorities. The company's operating loss of $179 million in the last three quarters was 74% lower than in the same period of 2023, despite revenue rising 16%.

Another encouraging sign is that Roku's balance sheet appears to be on solid footing. As of Sept. 30, the company had $2.1 billion in cash and cash equivalents, which was more than the total liabilities. What's more, Roku carries zero debt on the books, reducing financial risk.

3. Roku stock's valuation

I mentioned before how Roku shares have been a terrible performer in recent times. This can be extremely disheartening for prospective investors, particularly when the major indices have been hitting new records like clockwork. However, the opportunity is ripe for contrarian-minded thinkers.

The pessimism surrounding Roku is high, as the valuation suggests. As of this writing, shares trade at a price-to-sales (P/S) ratio of 2.6. This represents a notable 72% discount to Roku's historical average valuation. This deal is hard to pass up.

Investors should try to figure out why the market isn't rewarding Roku with a higher P/S multiple. I believe there are ongoing worries about the competitive landscape, as Roku goes up against dominant tech firms, all with deep financial resources, access to top talent, and expertise in digital advertising, in the streaming hardware and software markets.

But the fact that Roku has established itself as the clear smart-TV leader in the U.S. is a sign that it can compete effectively with the big players. Of course, this is something investors should monitor closely going forward. But I believe the current valuation, which is another reason to buy the stock, more than accounts for the competitive risk.