Roku Bulls Strike as Stock Roars to Record High

A wave of overdue bull notes have ensued

by Patrick Martin

Published on Aug 8, 2019 at 10:21 AM

The big earnings winner today is Roku Inc (NASDAQ:ROKU), up 19.5% to trade at $120.62, earlier nabbing a record high of $123.16. The streaming service reported an adjusted second-quarter loss of 8 cents per share on revenue of $250.1 million, slimmer than the expected 22-cent per-share loss and $224.4 million revenue estimate. Roku also upped its full-year revenue forecast, and reported 1.4 million net new accounts last quarter.

A rush of bull notes have ensued. Rosenblatt and Stephens upgraded ROKU to the equivalent of a "buy," and raised their respective price targets to $134 and $120. Plus, D.A. Davidson and RBC upped their targets to $135 and $107, with the former citing the content spending from big-name competitors like Disney and Amazon as a value-enhancer. 

Roku stock is set for its best day since May 9, and that's saying something considering it has nearly quadrupled in 2019. Put another way, ROKU has logged only six weekly losses year-to-date. Of course there have been pullbacks, but they found support at the shares' ascending 50-day moving average.

The post-earnings bullish analyst attention is long overdue, and there's room for more. There are 15 analysts covering ROKU, and prior to today, eight rated it a "hold" or "strong sell." Plus, the consensus 12-month price target of $99.73 is a discount to current levels.

There remains a bevy of short sellers, too, which means ROKU could have more left in the tank should some of the weaker bearish hands jump ship. The 8.4 million shares sold short accounts for 10.4% of the equity's total available float. 

This would be good news for today's options traders. Amid accelerated activity -- roughly 96,000 ROKU options have traded already, five times what's typically seen at this point -- buy-to-open activity is detected at the weekly 8/9 125-strike call. If this is the case, call buyers are betting on the stock breaking out above $125 by expiration at the close tomorrow, Aug. 9.

Roku stock has certainly been an attractive target for premium buyers during the past year, in the sense that it's made bigger moves than what the options market was pricing in. This is according to ROKU's elevated Schaeffer's Volatility Scorecard (SVS) reading of 96, out of a possible 100.

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