While the 2019 equity markets have recovered from the Christmas disaster, some stocks have far out-performed the indices. Roku (NASDAQ:ROKU) came into its earnings report event up 111% year-to-date, which is almost eight times that of the S&P 500 for the same period. In 24 months, ROKU stock is up nearly 150%.
And the news gets better again. Last night, management reported earnings and investors loved what they saw as the stock soared 7% after hours. The buyers are completely in charge of ROKU, which is a bullish sign since the whole market is hostage to tonight’s potential disaster geopolitical headline.
The White House declared on Sunday that by Friday morning, the U.S. will increase the tariffs on China. This caused heavy selling all week in anticipation. Only a headline to kick the can on the deadline would avoid this fact. Otherwise, there is a high chance that we see more selling tomorrow morning. ROKU stock could get caught up in the deluge.
Headlines aside, I am leery of chasing the rally today. I know this won’t win me any popularity awards. Also, know that I last wrote about shorting or opting out of the chase and that recommendation worked out very well in my favor. My previous cautionary tale was devoid of emotion as it was a matter of trading the charts. And therein lies some optimism in my note today.
My problem with ROKU is that it’s a company that has failed to reach profitability and prosperity in 16 years. I totally understand the potential, but I compare it to what Amazon (NASDAQ:AMZN) did in the last decade. This leaves me a skeptic for the long-term viability of its model.
I do like that they are an aggregator, but from my perspective, I see no need for it. I do just fine without paying Roku anything. I stream content and I cast it onto my TVs. So all I need ROKU for is the dongle to cast onto an older TV. Otherwise, I see no situation where I would pay for any of its current services.
But this is not the same as saying that I am bearish enough to short it. I am simply sharing my argument that I don’t want to chase the upside here, especially not for the long-term conviction buy scenario.
Now on to the good stuff. Yesterday’s report showed strength in important areas like its user metrics and monetization. So they do have the potential to finally cultivate the users into profits on the bottom line. But since we haven’t yet seen it transpire into the Profit and Loss statement, I keep the onus on management to prove it first. At these levels, I would rather watch from the sidelines waiting to clap for them when they do it. I completely accept the possibility that I may miss out on the upside from here … and that is okay.
On a positive note, while the fundamentals are not convincing, I am a fan of technical triggers. ROKU stock here sports a potential spike to challenge the all-time highs. There will be resistance as it approaches the highs, but if the bulls can use this momentum to break it, they would invite momentum buyers to target $85 per share.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
