Roblox (NYSE:RBLX) stock is new to Wall Street, but the company has been around since 2004. It has its roots in silicon valley from the early days of new tech companies like Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). This is not an electric vehicle company looking to create a new product to sell. They already have about a billion in yearly revenues.
Let’s first set the stage for gaming services in general. The popularity of online gaming is exploding. Soon half the world will be doing it. They are blurring the line between them and social media platforms.
Kids are a driving force there and it’s a relatively cheap form of entertainment. After the pandemic, parents and kids are at home more often so it makes for a great escapism.
RBLX already has very popular gaming services that are in high demand. They almost tripled their yearly revenue run rate in the last three years. This is a stock to own for the long term.
A bullish thesis over time does not mean to blindly buy RBLX stock at any point. I prefer building a position from strong levels. My goal is to always avoid the potential obvious mistake.
Bulls and Bears Battling over RBLX Stock
Since it’s debut on Wall Street, RBLX swung up 20% and down 15% from its mid range. Those who owned it throughout had reasons to celebrate and cry about the price action. Luckily, it is now in the middle of the range so we can trade it as if on the first day. Management has been doing what it needs to grow to business. But the stock price has outside influence, which investors need to understand. It could get bumpy.
We are going into the biggest earnings week ever and the outcome is binary. Most mega-cap companies report this week among others. In addition, the indices are near or at all-time highs. The slightest hiccup could catch negative momentum and cause a correction. If this happens, it will drag down RBLX stock with it. The company will have its turn to tell investors about its results quarterly results soon enough. In the meantime, it will go by way of the general market bias.
This week is going to be pivotal for the indices and a bit of a coin flip. I’ve yet to read reviews from experts expecting bad results, and that is a risk. The short-term reaction to the earnings have little to do with the actual quality of the reports. I have no doubt that companies like Apple (NASDAQ:AAPL) will crush earnings. What we don’t know is how high the expectations are and if the investors will throw a fit about it.
Fundamentals Will Eventually Matter Most
In the long term, strong results will help bring a higher stock price. RBLX stock is now front and center. The company will soon have the chance to reassure their investors that they made the right decision. If long the stock, the argument is to hold it. If looking to get into a position, now is as good as time as any. The most important part is not to get in at a potentially obvious mistake. This is not one of them but it doesn’t mean RBLX stock cannot fall.
Fundamentally, value will not be the argument to prop it up short term. RBLX stock has a 44 price-to-sales and it still loses money. This is almost four times more than its established giant competitors. It is not a freakishly alarming situation for a growth stock but it is definitely not an asset, either. On dips, the buyers will need to have conviction and vision for the future.
Investors can be finicky under stress so caution is a good idea. But when they are happy, they buy the stocks with vigor. Activision (NASDAQ:ATVI) stock is up 180% in five years, which is double that of the S&P 500. Gaming is here to stay and RBLX stock is in good company.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
