Key points
- Roku shares have once again given up large portions of recent gains, but this is becoming normal for them.
- The upside potential remains huge, with analysts’ new price targets calling for 90%.
- It’s hard to invest in a stock that’s falling while others are falling, but that’s when the biggest opportunities can arise.
- 5 Stocks We Like Better Than Roku
The 30% drop from the pre-earnings share price should tell you all you need to know Roku, Inc NASDAQ: ROKU earnings report. The streaming giant reported fourth-quarter numbers last week, and while it managed to get a revenue boost and share decent forward guidance, investors didn’t hesitate to rush to the exit.
It will be a bitter pill to swallow for any Roku investors, as you almost can’t ask for much more in an earnings report than increased revenue and better-than-expected future guidance. But with the stock having gained more than 70% since its October low, it appears to be a case of buying the rumor and selling the news.
This week’s decline is just the latest chapter in Roku stock’s increasingly difficult performance. Since bottoming in late 2022, after a 90% decline from the 2021 high, stocks have been on a slow but steady upward trend. I slowly but surely saw this happen because for every 100% gain I recorded, more 50% haircuts followed shortly after.
Getting involved
But is this just the latest move in what is still an emerging rally? Roku stock has consistently set higher highs and, while the declines have been viscous, higher lows. Take this week, for example; Even though stocks have lost nearly all of their gains since October, they are still above the October low, which is above the May low, which is above the previous December low. You can’t help but wonder if an entry opportunity is opening up here, as Roku has proven time and time again that it is resilient to even the most bearish worst-case scenarios.
This has been a topic that many leading analysts have focused on in recent days. Take for example the Stephens team, which reiterated its Overweight rating in the face of the decline, along with its $105 price target. It was the same for the Needham team, which reiterated a Buy rating and a $100 goal. Susquehanna went further and actually raised its price target in the wake of the report, which, at $110, was only topped by Wedbush’s $120.
Huge advantage
While Roku shares struggled to hold steady during Thursday’s session around the $64 mark, that indicates a targeted upside of nearly 90%. This type of upside potential is almost too good to miss, especially when the technical structure of the rally remains intact. Sure, you may have to hold your nose when buying such a weak stock while so many others are at all-time highs, but isn’t it in these types of setups where outsized opportunities can sometimes exist?
The stock’s relative strength index is at 27, indicating extremely oversold conditions, and the stock has a strong support line waiting around $55 if shares continue to fall. But don’t forget that this is still a company that managed to exceed analysts’ expectations for last quarter’s performance and, at the same time, exceed expectations for this quarter. Isn’t this the kind of company we’d all like to be a part of?
It’s worth noting that concerns have been raised about increasing competition in the streaming space, along with an unclear strategy for growth in international markets. Indeed, favorable factors such as these appear to have detracted from what would otherwise have been a promising report, but investors can indeed be fickle at times. If you’re watching from the sidelines right now, you have to think that much of the expected downside is already built into the stock price and that the upside potential right now is just too good to pass up.
Before you consider Roku, you’ll want to hear this.
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