Roku, Inc. (ROKU) shares fell more than 3% during Thursday's session after KeyBanc downgraded the stock to Sector Weight on valuation concerns.

Key Takeaways

  • Roku shares moved sharply lower during Thursday's session after KeyBanc downgraded the stock to Sector Weight on valuation concerns.
  • Analyst Justin Patterson believes that the stock is fairly valued given its fundamentals and requires additional catalysts to support a further move higher.
  • The stock appears somewhat overbought on a technical level, but the intermediate-term trend remains bullish.

Analyst Justin Patterson believes that the positive fundamentals appear reflected in Roku's share price alongside many potential positive catalysts. Investors seeking continued gains may need new catalysts to drive shares higher. While international growth is likely the next leg of the story, Patterson believes that these developments will take time.

The downgrade comes shortly after Roku announced the availability of The Roku Channel on Amazon.com, Inc.'s (AMZN) Amazon Fire TV. At the time, KeyBanc said that the surprise move broadened Roku's audience and could drive ad revenue but acknowledged that there may be lower average revenue per user on Fire TV than on Roku's own platform.

A Sector Weight rating typically means that an analyst expects performance equal to broader sector averages and recommends equal weighting with other components.

Many other analysts remain bullish on Roku stock despite its strong performance this year. For example, Needham's Laura Martin points to the rapid user growth during the COVID-19 pandemic as a catalyst for installed base growth, while its growing market share has made The Roku Channel a must-have streaming service. She maintains a $255 price target on Roku stock.

Chart showing the share price performance of Roku, Inc. (ROKU)
TradingView.com

From a technical standpoint, Roku stock continued to move lower from its all-time highs of around $240.00 but remains above trendline support. The relative strength index (RSI) remains lofty with a reading of 67.26, but the moving average convergence divergence (MACD) remains in a bullish uptrend. These indicators suggest that the stock could see some near-term consolidation, but the overall trend remains higher.

Traders should watch for consolidation above trendline support near $207.00 over the coming sessions. If the stock breaks down, traders could see a move to lower trendline resistance at around $174.00, although that scenario appears less likely to occur. A breakout from prior highs of around $239.00 could lead to fresh highs over the intermediate term.

The Bottom Line

Roku shares fell more than 3% during Thursday's session after KeyBanc downgraded the stock to Sector Weight amid valuation concerns. From a technical standpoint, the stock could see some consolidation above trendline resistance, but the intermediate-term trend higher remains intact at the moment.

The author holds no position in the stock(s) mentioned except through passively managed index funds.