When Roblox (NYSE:RBLX) stock held its initial public offering (IPO) on Wednesday, shares immediately jumped 55%, leaving value-minded investors in the dust. Tech IPOs in the past 12 months have often followed the same pattern: teasing retail investors with a low institutional-investor-only IPO price, and watching them scramble as prices shoot up. At first blush, RBLX stock looks set to fit that model perfectly.

Roblox’s unusual choice of a direct listing, however, gives patient investors a way out.

Usually, a traditional IPO means a massive one-time sale of stock by underwriters like Goldman Sachs.

On the other hand, direct listings will drip-feed shares into the market long after the initial IPO — often for six months after the fact. Patient investors willing to wait will likely find a better entry price as more Roblox shares become available.

RBLX Stock: Playing a Direct Listing IPO

Make no mistake: Roblox is a phenomenal company. The kid-friendly videogame company counts almost 200 million active monthly users, with over half under age 13. And unlike videogame companies like Zynga (NASDAQ:ZNGA) that rely on hard-to-predict blockbusters, Roblox has created a far broader ecosystem of gamers and developers.

Today, programmers create games using the Roblox platform, earning them money in the process. Meanwhile, the wider choice of games means better experiences for players, drawing even more gamers into the Roblox orbit. This virtuous cycle has given Roblox a powerful network effect in the game development world. 1,250 developers earned $10,000 or more in digital currency in 2020. Three hundred people generated $100,000 or more.

Wall Street analysts have already predicted a meme stock revolution. “Most professional investors believe there will be heavy retail interest in this name, without much price constraint,” Bernstein analyst Todd Juenger wrote. Shares could trade anywhere up to $120. It’s only natural that investors would have snapped up all 200 million available shares like hotcakes at a fair.

But then comes the more challenging part: should you buy in after the initial pop?

Insiders Hold Much of Roblox

What happens after the initial pop depends on how quickly insiders eventually cash out. Without the typical lockup periods of IPOs, insiders have more leeway to liquidate shares.

As of the firm’s listing, eight insiders hold almost 150 million shares. Another five venture funds hold another 300 million shares, and employees have another 75 million. In other words, insiders hold far more shares than anything currently on the market.

Many of these people will eventually cash out, even if only to diversify their portfolios. And the results are as one would expect. Slack Technologies (NYSE:WORK) and Asana (NYSE:ASAN), two enterprise software firms, saw shares dip 20%-35% after their direct listings. Spotify (NYSE:SPOT), a music streaming service, saw shares stagnate for almost two years before seeing a 150% run-up in price.

There are some occasional outliers. The golden opportunity to buy Palantir (NYSE:PLTR) lasted only three weeks before Reddit investors sent the stock soaring. And though the stock is 25% off its peak, it’s still the best performing of the four.

Roblox may continue to rise in the short-term as meme stock investors get their fill of this hot company – don’t expect the $65-$70 range to last long. But the rise will eventually reverse as post-pandemic growth slows and more shares hit the market.

Patience is a Virtue with RBLX Stock

Ordinarily, I would jump in quickly on companies with significant upside. Conviction investing is one of the essential skills any active investor must learn.

But Roblox has a couple of hidden landmines besides its potential insider sales. Firstly, it’s unclear how many retail investors understand that Roblox’s growth will slow in 2021. Few Wall Street analysts expect the firm to repeat its astounding pandemic-fueled 170% bookings growth, but retail investors might not realize how quickly growth can fall off. With $923 million in 2020 revenues, investors have priced Roblox at over 60 times price-to-sales. That gives the firm the dubious crown of one of the world’s most expensive tech companies.

And secondly, the firm hasn’t quite figured out its profit model yet. App store fees take a massive 25% cut of total revenue before Roblox sees a dime. What’s left gets divided into three equal ways between developers, platform costs, and Roblox itself.

In other words, the firm has struggled to reach profitability, even in a year where millions of students have stayed home.

What Should You Do with RBLX Stock?

Investors, however, have a secret weapon:

Robux, the currency of Roblox games.

In 2020, Roblox sold almost $1 billion of in-game virtual items that didn’t show up on its income statement. The line-item, known as “deferred revenue,” is an accounting quirk that can hide a firm’s underlying profitability. And in the case of Roblox, much of the virtual items sold have zero marginal cost – games and premium servers aside (which do cost Roblox money to create), in-game bonuses and items cost nothing to produce.

Reddit users do have it right – Roblox is a phenomenal company; it’s one of my top picks for 2021. But as for getting in, don’t worry if you missed the first wave. If other direct listings are any lesson, there’s a good chance you’ll find a sub-$50 entry price again someday.

On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.