A gain of 309.01% in 2019 for shares of Roku, Inc. (ROKU) tells of story of big demand for the shares. This demand is likely big buying in the shares. This is bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved. We actually profiled this company a couple of months ago, and the shares have jumped 25% since then. You can read the article here.

Smart money managers are always looking to bet on the next outlier stocks … the best in class. For Mapsignals, it's not enough to look at technicals and fundamentals alone. The key lies in the demand for shares.

I'll go into the fundamental picture later, but the true tell on the near-term trajectory of the stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall. For 2019, Roku stock has seen monster demand.

For Mapsignals, when we look for an entry on a leading stock, we want to see an increase of potential buying. Just to show you what our unusual trading activity signals look like, have a look at all of the unusual institutional (UI) signals Roku stock has made over the past year. Focusing on 2019, you can see a lot of buy signals (green) that line up with a lift in the shares. This is exactly the kind of setup we look for at our research firm. We want to bet on the likeliest candidates heading higher. We want an edge. Stocks move based on supply and demand. This is a chart showing big demand:

Chart showing the unusual institutional (UI) signals made by Roku, Inc. (ROKU)

So far in 2019, Roku stock has logged 12 unusually high-volume days, indicative of buying in the shares (see chart above). This demand can quietly lift shares. It has been happening quite a bit recently. This data suggests that demand for the stock is increasing.

If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Just like you don't want to fight the trend, you also don't want to fight a stock that shows increasing price alongside an increase in the volume traded. Someone could potentially be accumulating a position.

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. We are looking for big money, as big money moves stocks. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

When we decide on a strong candidate, we consider leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. The following are a few areas in which Roku stock has grabbed our attention year to date (YTD):

  • YTD outperformance vs. market: +291.24% vs. SPDR S&P 500 ETF (SPY
  • YTD outperformance vs. technology sector: +281.52% vs. Technology Select Sector SPDR Fund (XLK)
  • Recent big buy signals

Now, we take it a step further and score the best stocks showing unusual trading activity. Below you can see the historical times since 2018 when Roku made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. What jumps out is that the stock jumped above its prior 2018 highs with these big buy signals:

Chart showing the top-rated buy signals made by Roku, Inc. (ROKU)

On top of a technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Roku's latest earnings report showed year-over-year (YoY) growth:

  • Q2 2019 YoY revenue growth rate: +59%
  • Q2 2019 YoY gross profit growth rate: +47%

Roku shares are breaking out to highs with big demand. The streaming giant has a great interface, and it appears that big money is taking notice. We like the long-term story of the stock. The narrative for Roku is that the streaming space is growing rapidly, and the company is well positioned to capture market share. Roku's lead in the U.S. appears to be widening. We are always on the lookout for companies showing big buy activity in the shares. The best companies in a group tend to outperform over the long run. All of this points to a long-term opportunity for the stock.

The Bottom Line

Roku just reported solid earnings with strong guidance. Shares could be positioned for more upside. Given the lift in price, big buy demand, and strong guidance, this stock could be worth a spot in a growth-oriented portfolio. 

Disclosure: The author holds no position in Roku shares at the time of publication.

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