Roblox Hits a New All-Time High—Will It Keep Rising?

Roblox (RBLX) went public in March through a direct listing—the same route the Coinbase IPO took the following month. RBLX stock debuted at $45 per share. The stock hit a new all-time high of $97.47 on May 27. How high could Roblox stock go?

Roblox operates a platform for developing videogames. It offers developers the tools to make games that appeal to kids. Its rapidly expanding daily active user base is a testament to the success of the strategy and a major reason behind the stock’s rise. 

Roblox reported strong first-quarter results, which marked a positive start to life as a public company. The revenue jumped 140 percent YoY to $387 million. The bookings soared more than 160 percent to $652.3 million. The daily active users grew 79 percent to 42.1 million.

With gains of more than 40 percent YTD, Roblox stock is outperforming gaming peers Activision, Electronic Arts, and Take-Two Interactive. Activision stock is up 6 percent for the year, while Take-Two stock is down 10 percent for the year. Electronic Arts stock hasn't changed.

After Roblox hit the all-time high, investors want to know if it will keep rising. The stock has found support at $75 and it’s aiming higher. The next milestone is reaching $100 is closer following the latest rally. 

The stock has the potential to rise much higher. During the first-quarter earnings call, Roblox CFO Michael Guthrie mentioned that the company is nowhere close to exhausting its growth potential. The executive pointed out that Roblox still has a tremendous opportunity to grow in terms of geographies and age demographics. Strong earnings results will continue to push the stock up.

Wall Street will need to recalibrate its price forecast for Roblox since the stock has now stormed past the current average target price of $85. It has also soared past Wall Street’s highest target of $90. 

Many people played video games during the COVID-19 pandemic. The habit is expected to continue after the pandemic ends, which suggests long-term growth potential for Roblox.

Roblox partnered with Tencent to enter the Chinese market. It has a huge growth opportunity in the country. Its service there is presented as technology education, which appeals to Chinese authorities.

CNBC’s Mad Money host Jim Cramer has identified RBLX as his favorite game stock. Cramer observed that people are happy with their kids playing Roblox games instead of watching television.

Roblox and Unity Software (U) both operate videogame development platforms. Both of their stocks trade above $90. Roblox stock has gained 30 percent in the past month, while Unity stock is down 8.4 percent during the same period. 

While Roblox recently hit a new all-time high, Unity has pulled back 45 percent from its peak. The market values Roblox at $55 billion, which is more than twice Unity’s $26 billion valuation. Roblox trades at a price-to-book multiple of 96x, while Unity trades at a price-to-book multiple of 13x. Roblox carries a more expensive valuation than Unity.