Roku Could Reward Long-Suffering Shareholders
Roku Inc. (ROKU) is trading higher by nearly 3% in Thursday’s pre-market session after Guggenheim upgraded the streaming television hardware and software provider from ‘Neutral’ to ‘Buy’. The stock has been pulverized since a breakout attempt failed in July, giving up more than 180 points and 36% into this week’s low at 309.67. Numerous technical obstacles remain but price action could now retrace a good portion, or all, of that painful downside.
Resting After Historic 2020 Advance
The Silicon Valley juggernaut rose more than 250% in 2020, carving an historic advance underpinned by pandemic lockdowns and the release of numerous paid streaming services. Those outsized gains generated extremely overbought technical readings, setting the stage for this year’s gross under-performance. It might be a small victory but Roku lifted above the closing print of the last trading day of 2020 after this morning’s upgrade, finally posting a positive year-to-date return.
Stephens analyst Nicholas Zangler outlined his bullish thesis on Roku earlier this quarter, noting “Our overarching thesis is that all linear television ad spend will shift to connected television, driving $9 billion in connected television ad spend to $72 billion over time. In addition, we expect performance marketers that currently spend $134 billion across search and social advertising platforms to divert ad spend into the CTV channel as new technologies have enabled measurement and attribution on the big screen”.
Wall Street and Technical Outlook
Wall Street consensus is rock-solid despite this year’s two-sided tape, with an ‘Overweight’ rating based upon 20 ‘Buy’, 5 ‘Hold’, and 2 ‘Sell’ recommendations. However, price targets are scattered all over the place, currently ranging from a low of $310 to a Street-high $650. The stock is set to open Thursday’s session more than $150 below the median $486 target, highlighting enormous upside potential if more positive catalysts hit the financial headlines.
Roku broke out above 2019 resistance at 176.55 in September 2020 and entered a powerful uptrend that stalled above 485 in February 2021. A three-month decline shed a stomach-churning 213 points before a strong bounce recouped 219 points into July’s all-time high at 490.76. Price action into September carved an unwelcome replay of the first half, reinforcing the lower end of a massive rectangle pattern that now favors an eventual third trip up to range resistance near 500.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.