(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Roku Inc.'s (ROKU) stock has been battered in 2018 with shares down by 33% since peaking around $55 back in early January. Shares are surging today by over 4%, to about $37.90, and the stock could be heading about 13.5% higher, based on technical analysis.
The company reported better-than-expected first-quarter results on May 9, with earnings topping estimates by nearly 55%, coming in at a loss of $0.07 per share. Meanwhile, revenue also beat results coming in 7% higher than estimates at $136.6 million. Since reporting results, shares of Roku have jumped by about 4%.
Technical Break Out
The stock is currently trading right at a critical resistance level at $37.75, and with the stock rising above that resistance level it could climb to roughly $43. The stock had been trending lower since late December and traded out of the downtrend at the start of May. The stock attempted to break out following the quarterly results and failed, and it is now trying to break out for the second time. Should shares fail to break out, the stock may reverse course and head back toward $30.
The relative strength index (RSI) has been trending higher since March, despite the stock trading mostly sideways during the time, a bullish divergence. Additionally, the RSI suggests shares may continue to rise, with a reading of about 62, while having plenty of room to continue to increase before reaching overbought levels above 70.
Options trading suggest shares of Roku could rise to about $41.25, based on the options set for expiration on June 15. The $40 calls have an open interest of about 5,600 contracts and a cost of about $1.25 per contract. The long straddle options strategy suggests the stock could rise or fall by about 11% by expiration from the $38 strike price. It would place the stock in a trading range of $33.75 to $42.25, a vast trading range.
Analysts See Growth
Analysts have lower the company's earnings outlook for 2018 by 8.8% over the past 30 days, and see the company losing $0.26 per share in 2018, on revenue of $698.1 million. But analysts see the company turning a profit in 2019, at $0.03 per share, growing to $0.53 per share in 2020. Meanwhile, revenue is seen increasing to $1.199 billion by the year 2020. Despite the significant growth story, analysts have an average price target on the stock of $39, only 3% higher than the current stock price
ROKU Annual Revenue Estimates data by YCharts
The charts, the options and the analysts all seem to agree that shares of Roku are heading higher, but to what degree will be for investors to decide.
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.