Over the years I’ve had a good balance of skepticism versus optimism in my relationship with Roku (NASDAQ:ROKU) stock.
For a long time, I took issue with how slow they were to become profitable. Over the past few years, the company set aside those concerns in my book.
The only opportunity I seek in ROKU stock these days would be to buy the dips. I would prefer to trade it rather than just own it. The speed with which it moves offers great short-term opportunities.
Investing in equities comes in many flavors, it is not all vanilla. Buy-and-hold in home run stocks works, but so does active trading.
Therefore, I applaud those who held ROKU stock with conviction, as they are up 1,500% in five years. That’s eight times better than Netflix (NASDAQ:NFLX) and six better than Apple (NASDAQ:AAPL). They can continue to do that for as long as this growth pace is on.
Meanwhile, I prefer shorter-term profits when ROKU stock falls into support.
ROKU Stock Is in Good Hands
Last week, management reported earnings and Wall Street reacted badly to it. The report itself was not bad, in fact, it was pretty impressive if you knew where to look.
Like most often with these good stocks, the negative reaction is more about bad expectations. When investors get overzealous they tend to overshoot in both directions. We haven’t seen a good drop on bad earnings in a long while in mega-tech stocks.
Roku management has been executing on plans very well. That’s how they could almost quintuple revenues in four years. They also managed to finally swing into profitability along the way. It’s not easy to develop aggressive growth without letting spending get out of control. Therefore, they deserve the benefit of the doubt.
From a price action perspective, ROKU stock has strong support below current levels. We could find specific lines, but it’s better to say that if the selling persists there will be buyers below. Support is most often a zone not a hard line in the sand. Lower prices embolden the believers that already hold the shares.
On further weakness, the stock will be attractive for new investors as well. I wrote about a similar setup before. Back then I also suggested using options where investors can build safety margins.
The stock market broke records last week so the buyers are in charge on Wall Street. But we’ve gone so far and so long without a correction that I fear there could be one coming. This is not reason enough to short stocks, but to simply be cautious. I would refrain from going all in.
Moderation Is Key Up Here
Smart money should take new positions in small sizes just in case and to leave room for risk management.
We have to remind ourselves that sometimes good stocks fall through no fault of their own. This means that regardless of how good the opportunity looks in Roku stock I must consider outside factors.
Conviction is usually high when we have strong fundamentals and technical support them. These days, I purposely penalize myself down a notch to avoid over commitment. Those shorting ROKU for fundamental basis are wrong. Therefore, the conclusion today is you’re either with it or not against it.
Much of its success came with the help of what Netflix did. Like Tesla (NASDAQ:TSLA) did for the electric-vehicle opportunity, NFLX paved the road for streaming businesses. Now there are several giant companies helping along. Disney (NYSE:DIS) and Amazon (NASDAQ:AMZN) are two that I also like.
This is to say that the environment going forward for Roku is conducive to more success, not less. With this cohort of massive companies helping, the future is bright.
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.