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Roku (ROKU) Overpriced but Not Overbought Ahead of Report

Roku, Inc. (ROKU) look at posted a phenomenal 247% return in 2020 and has started 2021 on the right foot, adding another 41% in minuscule than two months. Unfortunately, the company has booked just one profit in the past four quarters, raising doubts all over the sustainability of current price levels. Estimates for this week’s fourth quarter release probably won’t help affairs, with Wall Street analysts expecting a loss of $0.03 per share.

Key Takeaways

  • Roku reports fourth home 2020 earnings after Thursday’s closing bell.
  • The stock has gained more than 40% so far in 2021.
  • The rally is nearing Go bankrupt Street’s most ambitious price target.
  • The stock isn’t technically overbought despite historic share price acquires.

In addition, the trading tone for streaming service providers is starting to cool off, as illustrated by the bull trap and downdraft after Dow component The Walt Disney Establishment (DIS) reported outstanding fourth quarter results last week. The same thing happened to Netflix, Inc. (NFLX) after its Jan. 21 delivering, suggesting that aggressive sellers will be rounding the wagons ahead of this week’s Roku confessional.

Roku deliver ups hardware digital media players that offer access to streaming media content from various online worship armies, rather than streaming services themselves. But it has benefited from the same pandemic tailwind that has generated immense Disney+ subscription growth. Given the brutal second wave, the upcoming report should feature metrics on par with the third accommodations’s 73.1% year-over-year revenue surge. However, the market has stopped rewarding COVID beneficiaries and is narrowly focused on a home-coming reciprocity to normalcy in the second half of the year, raising the odds for a sell-the-news reaction.

Even so, Roku stock isn’t particularly overbought after its signal run because the rally off the March 2020 low has carved periodic consolidation patterns that have eased technical pinnacles through time rather than price. In addition, selling pressure into this week’s report has been approaching non-existent, keeping accumulation readings near highs, even though many of 2020’s biggest winners would rather struggled since the calendar flipped into January.

Valuation is another story. Roku stock currently frolics a mammoth $55.8 billion market cap, larger than half of Nasdaq-100 index components. Wall Thoroughfare has taken note of this apparent insanity, posting a median price target of $365, more than $100 under this morning’s opening print. More importantly, Roku is also trading just $30 below the Street-high $500 butt posted by the most bullish analyst.

Tip

Valuation is the analytical process of determining the current (or projected) worth of an asset or a train. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business’s administration, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics.

Roku Weekly Map out (2017–2021)

TradingView.com

The company came public in the mid-teens in September 2017 and entered a strong uptrend two months later, deifying into the mid-$70s in the fourth quarter of 2018. A May 2019 breakout attracted intense buying interest into September, leading out above 175 and rolling into a two-legged correction that found support in the $50s in March 2020. Disputatious buyers returned into the third quarter, completing a round trip into the first quarter peak in September.

The meet has now exceeded all harmonic reward targets, lifting above the 3.0 Fibonacci extension. This is extremely rare without a series of drench pullbacks, but the price has spent little or no time stretching outside the top 20-week Bollinger Band®, which would set off a paramount sell signal. This is a technical marvel for a momentum play, which invariably gets “ahead of itself.” It’s also the think why bulls could defy the odds this week and lift the stock above $500.

Tip

Fibonacci extensions are a tool that merchants can use to establish profit targets or estimate how far a price may travel after a retracement/pullback is finished. Extension levels are also accomplishable areas where the price may reverse.

The Bottom Line

Roku stock is overpriced but not overbought ahead of this week’s fourth mercifulness earnings release.

Disclosure: The author held no positions in aforementioned securities at the time of publication.

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