Analyst: This Stock is Cheap Compared to Netflix

Options traders have been buying ROKU calls

Jul 23, 2018 at 2:11 PM
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Needham raised its price target on Roku Inc (NASDAQ:ROKU) by $10 to $60 -- the highest on Wall Street -- representing expected upside of 21% to the stock's current price of $49.46. The brokerage firm cited expectations for potential earnings-induced pop, and said ROKU stock looks cheap compared to sector peers Netflix (NFLX) and World Wrestling Entertainment (WWE).

Analysts have been growing more bullish on Roku stock amid the stock's rebound off its early April test of the $30 mark. However, even with the shares up 71% since then -- and nearly filling a late-February bear gap -- five of 10 analysts still maintain a lukewarm "hold" rating. Plus, the average 12-month price target of $45.40 stands at a discount to current trading levels. This leaves the door open for more upbeat analyst notes.

roku stock daily price chart july 23

Options traders have been growing more optimistic on ROKU, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 32,790 calls over the past 10 sessions, compared to 8,993 puts. The resultant call/put volume ratio arrives at 3.65 -- up from 2.06 two weeks ago. Today, buy-to-open activity has been detected at the August 60 call.

Some of this activity -- particularly at out-of-the-money strikes -- could be a result of short sellers initiating an options hedge against any additional upside risk ahead of the streaming name's Aug. 8 earnings report. Short interest jumped 5.3% in the most recent reporting period to 8.46 million shares, a whopping 54% of the stock's available float.

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