Why ROKU Stock Could Rocket Higher

It's been a rough week for Roku shares, but a rebound may be in the cards

Andrea Kramer
Oct 5, 2018 at 2:31 PM
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The shares or Roku Inc (NASDAQ:ROKU) are lower today, dropping in step with the broader equities market. In fact, the shares are on pace for their worst week since late March, down 9% -- but now could be the perfect time to jump in on ROKU's next leg higher, if past is prologue.

ROKU is back within one standard deviation of its 40-day moving average, after a lengthy stretch above this trendline. Since going public, there have been two other signals of this kind, after which Roku shares were higher one month later both times. Further, the stock was up an average of 19.19% a month after signals, per data from Schaeffer's Senior Quantitative Analyst Rocky White. At last check, ROKU was down 2.6% at $65.10; another 19.19% rebound would place the equity at $77.59 -- north of its Oct. 1 all-time high of $77.56.

ROKU stock chart oct 5

Should ROKU once again rocket to new heights, analysts could take notice. Despite roughly tripling in the past year, only 55% of covering analysts deem the stock worthy of a "buy" or better rating. Wedbush today, in fact, launched coverage of ROKU with a tepid "neutral" rating and $73 price target -- still higher than the consensus 12-month price target of $67.25, but lower than the security's current all-time high. A round of upbeat analyst attention could keep the wind at Roku's back. 

Several short sellers could also be caught off-guard. Short interest increased nearly 16% in the past two reporting periods, and now represents a whopping 55.8% of ROKU's total available float. A short squeeze could add fuel to the equity's long-term fire.

Finally, another big bounce off the 40-day could send recent option bears to the exits. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Roku's 10-day put/call volume ratio of 0.96 is in the 97th percentile of its annual range. This tells us that option buyers have picked up bearish bets over bullish at a faster-than-usual pace in the past two weeks.


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