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Which stock from Katie Wood's portfolio is the best to buy ? Roku and Tesla are among the key holdings in Katie Wood's ARK Innovation ETF portfolio. Of course, a well-known investment manager is attracted to innovative stocks, growing companies, and strong long-term incentives. Roku and Tesla are no different from many other stocks she likes to hold.
So let's answer that question in the video by looking at four different metrics. Let's start with quarterly revenue growth on an annualized basis: even before 2019, they had equally high growth rates. Tesla outperformed Roku at certain times, then Roku outperformed Tesla, and then Tesla overtook Roku when it faced significant difficulties, coping worse with supply chain disruptions during the pandemic, inflation, and more.
Tesla's revenue growth of 37% was more than three times higher than Roku's 11.91%. So, Tesla has the advantage in terms of revenue growth rate. Next, let's look at the operating profit margin for the last 12 months. Again, let's go back to the period before 2019. Both companies were on a remarkable upward trajectory until 2022, when their paths diverged: Roku's operating margin began to decline, reaching minus 8.3% over the past 12 months.
Meanwhile, Tesla continued its upward trajectory, maintaining an operating profit margin of 16.98%—that's significantly better than Roku, so Tesla has the edge. I believe this advantage will likely remain with Tesla, even though the company faces increasing competition, having recently cut prices by thousands of dollars on two of its most popular cars.
This will lead to a decrease in gross profit margin. However, Roku faces greater difficulties due to its higher cost of goods sold. In addition, Roku did not raise prices for its players because it wanted to focus on growing its customer base and attracting new users. As a result of this decision, their margins continue to decline.
Next, I wanted to look at cash flow from operating activities and compare Roku and Tesla on this metric. Again, similar upward trends in both until 2022, when Roku's situation changed dramatically: cash flow from operating activities in the 12 months fell from over 240 million to minus 21 million in the most recent period.
At the same time, Tesla's upward trend has persisted; Although the figure is down slightly from the previous quarter , it remains very strong— $14.72 billion in cash flow from operations. So, Tesla has the advantage and wins on this metric as well. So, so far, Tesla has an incredible advantage in three out of three indicators.
My last metric is valuation, and when I see such an advantage, the only chance for a lagging company is if its valuation is much lower than the one that is doing better. So let's see if the Roku's cost is low enough to make up for the performance lag from the Tesla. Here I have listed the valuation metrics: Roku by price- to-earnings ratio, and Tesla by price- to-free cash flow and price-to-sales ratio.
Let's start with the price- to-earnings ratio: Roku is more expensive than Tesla, trading at 88.89 according to the latest data. Of course, its profits have recently turned negative, so that's not even a fair comparison. Tesla has this indicator of 53.18, so Tesla is more profitable by this criterion.
The same goes for the price- to-free cash flow ratio: Roku has 66.86, while Tesla has 88.55. So, by this metric, Tesla is more expensive, but Roku's cash flow was negative, as we saw on one of the previous slides. This is not a completely fair comparison, as Roku is currently in negative territory, and we are looking at data as of July 2022 , compared to Tesla's more recent data.
As for the price- to-sales ratio, we can compare them directly, because sales are never negative — well, not to say " never," but it's rare for any company , and certainly not for Roku. So, looking at the price- to-sales ratio, Tesla trades at a multiple of 8.2, while Roku trades at 2.885. Thus, by this indicator, Roku is significantly cheaper than Tesla, but if you look at it as a whole, then in terms of price- to-earnings ratio, Tesla wins over Roku.
Therefore, it is not entirely obvious that Roku is cheaper in all respects. And, regardless, in my opinion, Tesla's advantage over Roku on the three other metrics we looked at justifies its premium valuation. If Tesla, say, was trading at a price-to- sales multiple of 20 and Roku was trading at 2.885, then I might say, "Okay, that premium is a bit high." But I think a premium of just over double that is completely justified.
Tesla is confidently ahead of Roku on all major fundamental metrics. So, if I had to say which Katie Wood stock is the best to buy, I would say Tesla is the best pick among her stocks right now. Well, that's all I wanted to say in this video . Thank you for watching. See you next time. I want to thank The Motley Fool for sponsoring this video. Visit fool.com/parkev for the 10 best deals to buy now.
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