The Only Reason to Consider Owning Roku for Less Than 3 Years

Key Points

Roku’s free cash flow is ready to more than double between 2025 and 2028, after years of persistent losses.

A sizable share buyback program was put in place to offset dilution, which boosts per-share metrics.

Even with multiple contraction over the coming three years, the stock is set up nicely here to provide investors with a strong return.

• 10 stocks we like better than Roku ›

One of the core tenets of The Motley Fool's investment philosophy is to hold companies for at least five years. This allows enough time for the fundamentals to play out, while also increasing the chances that investors can benefit from the power of compounding.

Unique circumstances, however, call for shorter time horizons. This is the case with Roku (NASDAQ: ROKU), which offers a clear indication for why this company can still be a winner.

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Here's the only reason to consider owning this stock for less than three years.

Roku's free cash flow is ready to soar through 2028

Roku generated $484 million of free cash flow (FCF) in 2025. That was a major improvement from $203 million the year before. Management has made it a priority to get the business in better financial shape after persistent net losses.

The leadership team is extremely optimistic. Executives believe the company can produce $1 billion of FCF in 2028. This would translate to a phenomenal 106.6% increase from 2025's total, driven by a more efficient cost structure and strong platform revenue growth.

The business is in the middle of a $400 million share buyback program as well. The goal with this is to offset any dilution from stock-based compensation, which can be impactful and is exactly what happened in the fourth quarter last year. The focus is to grow FCF per share, which is encouraging.

In the last three years, Roku's diluted outstanding share count expanded by 10%. With notable stock buybacks in place, maybe it's conservative to expect a 5% yearly growth rate between 2025 and 2028.

Based on cumulative growth of both FCF and the diluted outstanding share count between 2025 and 2028 of 106.6% and 15.8%, respectively, FCF per share is forecast to rise at a yearly clip of 78%.

Multiple contraction doesn't get in the way of a winning outcome

Roku shares currently trade at a price-to-FCF (P/FCF) ratio of 35.5. This doesn't look like a bargain at all. So, there's a good chance the multiple contracts going forward. In three years, I believe a P/FCF ratio of 30 makes sense, given the business will still be staring at a long growth runway in the future.

Multiply this valuation by estimated FCF per share of $5.72 in 2028, and Roku shares could see a 50% gain in about three years. This translates to a strong 14.5% annualized return. Assuming Roku registers no share-count dilution during this time, and the stock price could rise 78%, or 21.2% annualized.

Investors should realize that it's extremely difficult to make accurate predictions. However, this exercise provides a convincing argument to consider buying this streaming stock with a shorter time period than The Motley Fool's minimum of five years.

Should you buy stock in Roku right now?

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roku. 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.