Roku Rocking Again - Part III
I last talked about Roku about one month ago.
While the S&P 500 had a great start to the year, Roku’s share price rose 47% in January and then rose 48% in February. However, Tom Forte at DA Davidson though there was more room to the upside and at that time, he raised his price target on the stock to $80, calling Roku's nascent streaming service a driver of future growth.
Nevertheless, the chart suggested to buy Roku if and when price pulled back to the daily demand level at $50.
Yesterday Roku was downgraded by Citi Research’s analyst Mark May.
May downgraded the stock from sell to neutral on Monday, writing that developments in the over-the-top landscape could mean that consumers will have less reason to use Roku’s ROKU, products and services. “For instance, Apple’s new [Apple TV+] service is not ad-supported (i.e., limited to no revenue opportunity for Roku) and Apple AAPL, announced several deals to directly integrate and distribute the service on several smart TVs,” May said.
He also sees Alphabet Inc.’s GOOGL, Android TV operating system gaining momentum. May set a 12-month price target of $50 a share, down from $53 previously.
In general, he finds shares to be expensive after nearly doubling in price so far this year. As of the publication of May’s note to clients, the stock was trading at a roughly 70% premium to peers and 80% to 90% above its 2018 lows, based on 2020 estimates of enterprise value to gross profit.
His price target of $50 coincides with the daily demand at $50. But why not play Roku to the downside as well. After the downgrade, price formed a 4 hr supply zone. Thus, the chart suggests to short price if it pulls back to $64 and ride it down to the $51 level.
NOTE: always want to get out before the opposing zone.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
Roku’s opportunity was to sell itself off when they had premiums valuations based on growth prospects. Unfortunately, that is now behind them with incoming competition.
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It will be interesting to see if they can hold their own against the competition and since consumers have so many choices.