- Roku shares moved higher after Citi raised its price target to a Street high of $375 and Needham recommended going short Netflix, Inc. (NFLX) and long Roku.
- New streaming agreements and international expansion could prove to be strong catalysts over the coming year.
- The stock moved further into overbought territory on a relative strength index (RSI) level, but the moving average convergence divergence (MACD) suggests that the intermediate-term trend remains bullish.
Citi reiterated its Buy rating on Roku and raised its price target from $220 to $375 per share. Analyst Jason Bazinet believes that the company's Discovery+ streaming distribution agreement and likely deal with HBO Max creates room for further upside. In addition, Bazinet sees further upside potential in Roku's international expansion efforts.
Needham analyst Laura Martin called short Netflix, long Roku the firm's top pairs trade for 2021. While Netflix's growth story could slow next year, the analyst believes that Roku's powerful advertising growth engine could pay dividends on its larger installed base. The analyst maintained its Buy rating on Roku and an Underperform rating on Netflix.
From a technical standpoint, Roku stock broke out from trendline resistance to fresh highs during Wednesday's session. The RSI moved further into overbought territory with a reading of 76.12, but the MACD remains in a bullish uptrend that shows no signs of reversal. These indicators suggest that the stock could see some consolidation, but the intermediate-term trend remains bullish.
Consolidation in technical analysis refers to an asset oscillating between a well-defined pattern of trading levels. Consolidation is generally interpreted as market indecisiveness, which ends when the asset's price moves above or below the trading pattern.
Traders should watch for consolidation above trendline resistance at $320 or prior highs of $310 over the coming sessions. If the stock breaks down from those levels, traders could see a move toward trendline support and the 50-day moving average at $238.52. If the stock rebounds higher, traders could see a move toward fresh all-time highs.
The Bottom Line
Roku shares rose sharply higher during Wednesday's session after Citi raised its price target and Needham came out bullish. While the stock moved further into overbought territory, the intermediate-term trend remains bullish, with the fundamentals pointing in the same direction.
The author holds no position in the stock(s) mentioned except through passively managed index funds.