Roku stock and the mother of all entry opportunities

The 30% drop from their pre-earnings share price should tell you everything you need to know about Roku, Inc.’s NASDAQ: ROKU earnings report. The streaming giant reported their Q4 numbers last week, and while they managed to deliver a beat on revenue and shared decent forward guidance, investors didn’t hesitate to run for the exit. 

It will be a bitter pill to swallow for any Roku investors, as you nearly can’t ask for much more in an earnings report than a beat on revenue and better forward guidance than expected. But with the stock having gained more than 70% since October’s low, it’s looking like a case of buy the rumor and sell the news. 

This week’s drop is just the latest chapter in Roku’s increasingly rocky share performance. Since bottoming out in late 2022 after a 90% slide from 2021’s high, shares have been slowly but surely trending up. I saw slowly but surely because for every 100% gain they logged, multiple 50% haircuts followed shortly afterward. 

Getting involved

But is this just the latest move in what is still an emerging rally? Roku shares have been consistently setting higher highs and, even though the drops have been viscous, higher lows. Take this week, for example; even with shares having given up almost all of their gains since October, they’re still above October’s low, which is above May’s low, which is above the previous December’s low. You can’t help but wonder if there’s an entry opportunity opening up here, as Roku has shown itself time and time again to be resilient against even the most bearish worst-case scenarios. 

This was a theme that several of the heavyweight analysts have cottoned onto in the past few days. Take the team over at Stephens, for example, who reiterated their Overweight rating in the face of the drop, along with their $105 price target. It was the same from the Needham team, who reiterated their Buy rating and a $100 target. Susquehanna went one further and actually boosted their price target in the wake of the report, which, at $110, was only topped by the $120 from Wedbush. 

Massive upside

While Roku shares struggled to stay flat during Thursday’s session around the $64 mark, this is pointing to a targeted upside of almost 90%. That kind of upside potential is almost too good to miss, especially when the technical structure of the rally remains intact. Sure, you might have to pinch your nose when buying a stock that’s so weak while so many others are at all-time highs, but isn’t it in these kinds of setups where the outsized opportunities can live sometimes? 

The stock’s relative strength index is at 27, pointing to extremely oversold conditions, and the stock has a strong support line waiting around $55 if shares continue to fall. But don’t forget, this is still a company that was able to beat analyst expectations on last quarter’s performance and, at the same time, beat their expectations for this quarter. Isn’t that the kind of company we all want to get a piece of? 

It’s worth noting that concerns have been raised about increasing competition in the streaming space, along with an unclear strategy for growth in international markets. Indeed, tailwinds like these seem to have taken such a shine off what was otherwise a promising report, but investors can indeed be fickle sometimes. If you’re watching from the sidelines right now, you have to be thinking that much of the expected downside is already baked into the share price and that the upside potential right now is just too good to sit out on.