Roku Action: Opportunities for Short and Long Term Gains
Over the years, I have had a good balance of skepticism and optimism in my relationship with Roku (NASDAQ:ROKU) Stock.
For a long time, I contested the slowness with which they had become profitable. For the past several years, the company has put these concerns aside in my book.
The only opportunity I’m looking for in ROKU stocks these days would be to buy the dips. I would rather trade it than own it. The speed with which it is evolving offers great opportunities in the short term.
Investing in stocks comes in many flavors, it’s not just vanilla. Buying and holding stocks at home works, but so does active trading.
Therefore, I applaud those who held ROKU shares with conviction, because they have increased by 1,500% in five years. It’s eight times better than Netflix (NASDAQ:NFLX) and six better than Apple (NASDAQ:AAPL). They can continue to do so as long as this rate of growth is maintained.
Meanwhile, I prefer short term profits when ROKU stock falls in support.
ROKU shares are in good hands
Last week, management announced earnings and Wall Street reacted badly. The report itself wasn’t bad, in fact it was pretty impressive if you knew where to look.
As is most often with these good deeds, the negative reaction is more about bad expectations. When investors get overzealous, they tend to overshoot both ways. It’s been a long time since we’ve seen a good drop on bad earnings in mega-tech stocks.
Roku’s management executed the plans very well. This is how they could almost quintuple their income in four years. They also managed to finally achieve profitability along the way. It is not easy to develop aggressive growth without letting spending run out of control. They therefore deserve the benefit of the doubt.
From a price action perspective, ROKU share is enjoying strong support below current levels. We could find specific lines, but it is better to say that if the sale persists there will be buyers below. The backing is most often an area and not a hard line in the sand. Lower prices embolden believers who already own the stocks.
If there is any further weakness, the stock will also be attractive to new investors. I wrote about a similar setup before. At the time, I also suggested using options where investors can create safety margins.
The stock market broke records last week so buyers are in control on Wall Street. But we have gone so far and so long without correction that I fear there is one to come. This is not a sufficient reason to sell stocks short, but simply to be careful. I would refrain from doing everything.
Moderation is the key here
Smart money should take new positions in small sizes just in case and to make room for risk management.
We must remember that sometimes good deeds fall without fault on their part. This means that no matter how good the opportunity for Roku action is, I have to take outside factors into account.
Conviction is usually high when we have strong fundamentals and support them technically. These days, I deliberately penalize myself a notch for avoiding over-engagement. Those who shorten ROKU for a fundamental basis are wrong. Therefore, the conclusion today is that you are either with it or against it.
Much of its success has come with the help of what Netflix has done. Like You’re here (NASDAQ:TSLA) made for the electric vehicle opportunity, NFLX paved the way for streaming companies. Now there are several giant companies helping. Disney (NYSE:SAY) and Amazon (NASDAQ:AMZN) are two that I like too.
That is, the environment in the future for Roku is conducive to more success, not less. With this cohort of massive businesses helping out, the future is bright.
At the date of publication, Nicolas Chahine did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Nicolas Chahine is the Managing Director of SellSpreads.com.