What goes up must come down, or so we’re told. But if that discussion is about pricey-looking Roku (NASDAQ:ROKU) stock, investors would be wise to tune into today’s momentum opportunity and buy before shares grow even richer. Let me explain.
Its earnings season for many on Wall Street. And if you like watching paint dry, Citigroup (NYSE:C) which kicked off the festivities this week with its results, is just waiting for bulls to wake up to its better-than-forecast report.
Then there’s ROKU.
With earnings still a full month away Roku stock is breaking out with nary a peep from today’s headlines. Unofficially, ROKU could be anticipating a stronger-than-forecast confessional from streaming video on demand or SVOD giant Netflix (NASDAQ:NFLX) which releases results Wednesday night.
While Netflix may be the crown jewel, the SVOD market is a crowded field. There’s Disney’s (NYSE:DIS) Hulu, the forthcoming Disney+, Prime Video from Amazon (NASDAQ:AMZN), HBO Go, Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube and the list goes on and on. But as the platform of choice for watching all that entertainment, Roku stands to benefit no matter who can outspend who on content to control our eyeballs.
So sure, you could maintain that Roku stock is expensive. It is and many of my colleagues at InvestorPlace have argued that point. But during growth phases of a secular trend like the one fueling ROKU, shares aren’t going to offer traditional value investors many, if any, opportunities.
The good news is ROKU stock is offering momentum traders a terrific chance to profit right here, right now.
Roku Stock Weekly Chart
Buying pullbacks and larger corrections are of course the most commonly accepted way to “find value” in a name such as Roku stock. And while those types of entries rightfully find favor among investors, they also have their limitations.
The most obvious challenge is when that pullback entry in ROKU turns into a much-more-punishing spiral in the share price. Many investors will pull the plug on their prior optimism and dump shares at a loss in fear of even larger losses. And it’s easy to second guess ourselves too.
More often than we like to believe, those “value” opportunities don’t look nearly as attractive when the punishing price action occurs. Remember 2018’s market correction? And compared to the stodgy old Dow Jones Industrials or a mature tech company like Apple (NASDAQ:AAPL), those declines paled next to Roku stock’s crash of 65%.
Today’s breakout entry doesn’t have those potential shortfalls. With the market at its back and a breakout from a month-long base in hand, a momentum purchase in ROKU stock, plain and simple, makes sense. It has its own special kind of value in this type of environment which shouldn’t be dismissed.
My only recommendation in Roku is this — remember to take profits when they’re offered. And please don’t make the mistake of allowing a breakout to become a pullback and, potentially, something much more sinister.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
