The central theses
- Roku stock fell sharply during Thursday’s session after KeyBanc downgraded the stock to Sector Weight on valuation concerns.
- Analyst Justin Patterson believes the stock is fair given its valuation Basics and requires additional catalysts to encourage further upward movement.
- The stock appears something overbought on a technical level, however, the medium-term trend remains optimistic.
Analyst Justin Patterson believes the positive fundamentals are reflected in Roku’s share price, along with many potential positive catalysts. Investors looking to keep making profits may need new catalysts to drive stocks higher. While international growth is likely the next part of the story, Patterson believes these developments will take time.
The downgrade comes shortly after Roku announced the availability of The Roku Channel on Amazon.com, Inc. (AMZN) Amazon Fire TV. At the time, KeyBanc said the surprise move would broaden Roku’s audience and increase ad revenue, but acknowledged that Fire TV may have lower average revenue per user than Roku’s own platform.
ONE Sector weight Rating usually means that an analyst expects performance that corresponds to a broader industry average and recommends an equal weighting with other components.
Many other analysts remain bullish on Roku stock despite the 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 the growth of installed bases while growing Market share made The Roku Channel a must-have streaming service. She maintains $ 255 Price target on Roku share.
From a technical perspective, Roku stock continued to move from its all-time high of around $ 240.00 but remains above the trend line support. The Relative Strength Index (RSI) remains high at 67.26, but the moving average convergence divergence (MACD) remains in an uptrend. These indicators suggest the stock might consolidate in the short term, but the general trend remains higher.
Traders should look for any consolidation above trendline support near $ 207.00 in the upcoming sessions. If the stock collapses, traders could see a move towards the lower trendline resistance at around $ 174.00, although that scenario seems less likely. A breakout from previous highs of around $ 239.00 could lead to new highs in the medium term.
The bottom line
Roku shares fell more than 3% Thursday after KeyBanc downgraded the stock to Sector Weight on valuation concerns. From a technical perspective, the stock could see some consolidation above trendline resistance, but the medium-term higher trend remains intact for now.
The author has no position in the stocks mentioned, except through passively managed index funds.