(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Roku Inc.'s (ROKU) stock is breaking out, and that may lead shares to rise by about 10.5% from its current price around $43.50 based on an analysis of the technical chart. Options traders are betting shares rise as well, based on the options set to expire in the middle of July.
The optimism among investors comes as the outlook for the business continues to improve, and analysts raise estimates. In fact, shares of Roku have been rebounding since early April after falling to around $30, but have rebounded by 43%. Despite that significant rise, shares of the stock are still down by 16% on the year and nearly 22% off their highs. (For more, see also: Roku Shares Could Fall 50% Further.)
Shares of the stock are attempting to break out, rising above the level of technical resistance at $43. Should shares be successful in breaking out, they could increase all the way to the next level of technical resistance at $48.20, a jump of 10.55% from its current price around $43.50. Additionally, it would refill the giant gap created after the stock plunged following the companies disappointing quarterly results in February.
The options set to expire on July 20 have seen increasingly bullish bets at the $45 strike price. The calls cost about $2.50, and a buyer of the calls would need the stock to rise above $47.50 to break even if held to expiration. Open interest has been steadily increasing in the July $50 calls as well, now with 2,800 open contracts, with the stock needing to rise to about $51 for those calls to break even. (For more, see also: Short Sellers Taste Profits as Roku Plunges.)
The outlook for the business has been steadily rising as well since the end of April. Analysts are looking for strong earnings growth in 2019 with earnings expected to rise from a loss of $0.27 per share to a profit of $0.05 per share. Revenue is also seen surging in 2019 by 32% to roughly $921 million. Those revenue estimates have climbed by about 3.5% since the end of April.
Whether or not traders and investors are just looking for short-term profits or the longer-term growth of the business, is the lingering question. Where the stock ultimately goes over the next several weeks may be telling.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.