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 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%.
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.
