Shares of Roku (ROKU) have risen spectacularly this year, creating significant investor wealth. But how will it perform going forward? Roku stock is already trading at a premium to Wall Street’s average estimates. What do its technicals indicate?
Roku’s 14-day MACD (moving average convergence divergence) is 7.43. A stock’s MACD marks the difference between its short- and long-term moving averages. The company’s positive MACD indicates an upward trading trend.
The stock’s 14-day RSI (relative strength index) score of 67 indicates that it’s trading very close to overbought territory. An RSI score of above 70 indicates that a stock is overbought, while an RSI score of below 30 indicates that it’s oversold.
Long-term outlook remains optimistic
While Roku shares might be volatile in the near term due to its high valuation, the long-term view for this stock remains optimistic. Roku stock is trading at 10.3x its sales, which is definitely high, but strong revenue and earnings growth are supporting its high valuation.
Roku has gained tremendously from the cost-cutting phenomenon. Customers are now transitioning from traditional cable TV to online streaming platforms such as Amazon Prime Video (AMZN) and Netflix (NFLX). As we’ve learned, domestic cable and satellite TV companies in the United States lost 3 million subscribers in 2018 and another 1 million in the first quarter of 2019.
Roku’s Platform segment consists of fees from advertisers and content publishers and from licensing its technology and proprietary operating system. Its Player segment’s sales consist of revenues from streaming media players and accessories through retailers and distributors.
During its first-quarter earnings call, Roku claimed to be the best-selling smart-TV platform in the United States. It has a market share of 33% in smart-TV sales in the United States. While Roku’s number of active accounts rose 40% year-over-year in the first quarter, its streaming hours rose 74.0%.
Amazon, Netflix, and the Walt Disney Company (DIS) are expected to spend billions of dollars on original content production and viewer retention. Roku is all set to benefit from the exponential growth in the streaming segment, which will mean high sales growth.