Jon Quast, The Motley Fool

Sun, Jun 29, 2025, 6:45 AM5 min read

• Roku is trying to provide an advertising capability that few (if any) have ever been able to offer.

• However, the platform doesn't seem to have impressed advertisers in recent years,

• This is a troubling trend that needs to soon change in order to jump-start the business.

• 10 stocks we like better than Roku ›

There are multiple reasons to believe that stocks are overvalued right now, generally speaking, motivating me to move on from some old duds in my portfolio.

For starters, consider the market for initial public offerings (IPOs). Companies usually wait to go public until market conditions heat up. High stock valuations allow IPO companies to raise more money. After below-average IPO years in 2022, 2023, and 2024, this year is shaping up to be above-average for new listings.

The rise in IPO stocks in 2025 suggests that stock market valuations are high. And this suggestion can be corroborated further. According to YCharts, the price-to-earnings (P/E) ratio for the S&P 500 is 28, well above its 10-year average of 25.

Some investors may use this information to "time the market," selling all of their stocks. I believe that's the wrong takeaway -- there's no telling what will happen with the market next. But for me, I have stocks in my portfolio that I'd like to move on from. In my view, now is as good a time as any to sell these, considering the stock market is potentially overvalued.

I recently gave connected-TV platform company Roku (NASDAQ: ROKU) a hard look. I started buying shares in 2020 and continued buying into 2022. My entire position is down about 15% as of this writing, even though the S&P 500 has risen dramatically during my holding period. But I ultimately decided to keep holding for one key reason.

It's early. But so far, I'm happy with my choice. On June 16, Roku secured a deal with Amazon (NASDAQ: AMZN). And it underscores why I still haven't sold Roku stock yet.

For eight consecutive quarters, Roku has sold its hardware devices at a gross loss -- it sells them for less than it costs to make them. It does this because it's more interested in taking market share and becoming an advertising-technology (adtech) titan in connected TV (CTV).

When it comes to adtech, TV screens are the most desirable advertising medium, and Roku powers TVs in over 90 million households. Not only is the video format attractive to advertisers, but Roku has an interesting value proposition: It can "close the loop" in advertising.