Roku And The 20% Rally That’s About To Start

Key Points

• Shares of Roku have been rallying since the start of the year. 
• While the longer-term chart is tough, the nearer one is quite attractive.
• A fresh upgrade from Susquehanna is pointing to additional room on the upside.

Despite hitting a multi-year low at the start of the year, it’s been a great first quarter for streaming giant Roku Inc NASDAQ: ROKU. Back in January, it meant their shares were down more than 90% from 2021’s high, but since then they’ve tacked on a solid 60% and look set to keep trending up. 

They were one of the darlings of the COVID pandemic, as their shares rallied close to 700%, but like so many other tech companies out there, the bubble burst pretty quickly. But for those of us who avoided buying at or near the top, there are several reasons to start thinking about getting involved in a fresh long position. Let’s jump in and take a look at them.

Fresh Upgrade

Yesterday morning saw Roku receive a fresh upgrade from the team over at Susquehanna, which will act as a solid tailwind heading into the second quarter of the year. Susquehanna analyst Shyam Patil and his team upgraded Roku to a positive rating from neutral while also raising his price target to $75 per share. 

They cited the company's position as a prime beneficiary of connected T and believe it is well-positioned to benefit from the continued shift from traditional linear TV to streaming. As consumers continue to cut the cord and turn to streaming entertainment, Patil believes Roku is poised to benefit from a growing demand for platforms like it. He also noted that Roku's strong position in the connected TV market gives it an advantage over competitors.

In a note to clients, he wrote that “indeed, we’ve heard industry constituents publicly point to such dynamics in the more real-time marketplaces of scatter and programmatic sales, including a competitor recently calling out 'pretty encouraging' trends, and citing m/m improvement beginning in January, following a bottom in the last couple weeks of December”. Susquehanna’s price target of $75 points to fresh upside of at least 20% from current levels, notwithstanding the solid run they’ve had already this year.  

Investors who are optimistic about the broad industry shirt should be excited about Roku down at these prices. The company’s growth from here is going to be fueled by several key factors, including its focus on the user experience, its business model, and the continued shift toward streaming entertainment. They generate most of their revenue through advertising and platform fees charged to content providers. This approach has allowed Roku to offer its devices and software at relatively low prices. The company has also successfully attracted a wide range of content providers to its platform, which has helped position Roku as a one-stop-shop for all types of content.

Getting Involved

This week’s upgrade came about a month after a double upgrade from Bank of America, who moved them from a Sell to a Buy rating back in February. The team there was impressed by the company’s solid Q4 numbers, which topped analyst expectations and saw improved forward guidance. Their confidence has been well justified since all the signs point to Susquehanna being proved equally right. 

Roku’s shares have been consolidating around the $60 mark and are in a tightening range, so let’s see if this gives them the push they need to break out to the north. The first natural target would be around $75 which is where they popped to after February’s earnings report. Beyond that, the path back to triple-digit share prices looks pretty smooth. In the meantime, there’s a strong 20% to be had for investors with money on the sidelines.