When Netflix (NASDAQ:NFLX) came onto the scene, I initially resisted the bullish thesis in its stock. The concept was just too new. But luckily I was flexible on that front and quickly changed my opinion. The more important bit of datum is that I also “cut the cord” from cable. Millions did the same and billions more will follow eventually. That’s the bullish thesis behind FuboTV (NYSE:FUBO) stock as well. It is riding an ongoing wave of change.
The concept of streaming media is still relatively new, but sentiment has flipped. There is no longer any doubt that it is the method of choice. Streaming is the status quo, and that feeds right into the FUBO opportunity. It is now a matter of “if” not “when” the rest of the world switches to it.
The success of the Disney’s (NYSE:DIS) Disney+ is more proof of that. Eventually, there will be only “cord cutters” or cord nevers. In the meantime there are millions of households that are still in between. The runway will be long and FUBO stock can do well over time.
Strong Business Model and Weak Stock
The concept behind streaming stocks is beyond reproach. Unfortunately, FUBO stock is down 57% off of it all-time high. This is even after Thursday’s 4.4% rally.
In all fairness, the December 120% rally was too good to be true. Therefore, it made sense that shares gave it all back and then some in two weeks. But in the year of Reddit trading, the bulls did it again in January.
However, that’s when the really bearish stint started.
From $57 per share, it shed altitude quickly. The bulls tried on several occasions to find footing, but they failed. Levels to note were near $40 and $33 per share. Currently the first major resistance area is at $31 per share.
I took us for a stroll down through Fubo Pain Lane to learn from the action. The bulls should expect resistances along those same levels on the way back up. But before this can happen, FUBO stock needs to stay above $24.50. Losing that would invite momentum sellers to attempt a 15% correction. This is not my forecast, but it’s a scenario that could unfold.
Remember that sometimes stocks fall through no fault of their own. If the indices stumble, they will drag the good and the bad with them. Should that happen, I would be there to catch the falling knife in FUBO stock. If I already own shares I would not want to add to them without new information.
Those who are looking to deploy bullish risk now should consider using options. There, it’s easy to get long FUBO stock and leave room for error. Selling puts allows for that to happen. One investor buys puts for protection from another who seeks entry into the stock. This would be the classic win-win scenario.
FUBO Stock Is Reasonable
So far we’ve discussed the general opportunity of streaming and the technical details of the stock. As for the company fundamentals, they are promising. It is too new to harshly judge its margins. But since it has a single-digit price-to-sales I deem it reasonable. The revenue growth is good enough that this metric should be an asset.
This argument strengthens if FUBO stock falls further.
In conclusion I would reiterate the message that this is an opportunity worth pursuing. But I also would still raise overall caution around all equities. I warned about turbulence in early May going into earnings. The stock fell more than 20% before finding footing. Prior to that I also wrote about using options to trade it in February. That would have also yielded profits even though the stock collapsed.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.