Right Time to Jump On ROKU

Last time Roku stock pulled back to the 40-day, the shares skyrocketed

Aug 1, 2018 at 2:51 PM
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Like most tech stocks, the shares of streaming content provider Roku Inc (NASDAQ:ROKU) took a spill on Monday, July 30. However, ROKU stock is now trading at a key level on the charts, and could be flashing "buy" ahead of earnings next Wednesday, Aug. 8.

To start, ROKU seems to have found support atop a trendline that connected its lower highs since the December peak. This trendline is now in the vicinity of triple the security's initial public offering (IPO) price.

In addition, Roku stock is now within one standard deviation of its 40-day moving average, after a lengthy stretch above this trendline. The last time this happened, the shares went on to rally 12.21% in the subsequent week, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From the stock's current perch at $45.20, a similar rally would put ROKU north of $50.

ROKU stock chart august 1

The stock isn't a stranger to big earnings reactions, either. With three quarterly reports under its belt, ROKU has averaged a one-day post-earnings swing of 24.8%, including a massive 54.9% jump after its November earnings showing.

Should Roku surprise to the upside after next week's report, there's plenty of room on the bullish bandwagon. Although the stock has more than doubled in the past nine months, half of the analysts following ROKU maintain tepid "hold" ratings, leaving the door open for potential upgrades to lure more buyers to the table. Price-target hikes could also be on the horizon; the consensus 12-month price target of $45.40 is in the same ballpark as Roku stock's current price.

Plus, short sellers could start to hit the exits, potentially driving ROKU shares even higher. Short interest grew more than 9% in the past two reporting periods, and now accounts for more than half the stock's total available float.

 

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