Roku ‘s Bubble Can Keep Inflating in Fifth Wave

Roku 's Extreme Valuation to Stretch Further

Last year’s coronavirus selloff dragged Roku to barely above $58 a share. At that low point, the stock was down 67% from its September 2019 high. Fortunately for its shareholders, however, Roku ‘s rebound was even more spectacular. The share price reached an all-time high of $486.72 by February 2021, up 740% in less than twelve months.

But the streaming industry in which Roku operates is extremely competitive. While Netflix remains in the leading position, Disney, Amazon, Hulu and Apple, just to name a few, are all making strides in the space. As a result, most streaming platforms operate at a loss. Roku ‘s revenue is growing rapidly, but its bottom line has been gravitating around zero for years.

Netflix might have some kind of a competitive advantage in terms of scale and Disney – in terms of content. But we fail to see any competitive moat around Roku. So with the stock still down 32% to $330 now, is this a buying opportunity?

Roku stock can exceed $500 a share in fifth wave of impulse

Trends move in repetitive patterns, called impulses. Assuming an impulse is really in progress, Roku ‘s surge since its 2017 IPO can be labeled (1)-(2)-(3)-(4) so far. Wave (4) just bounced off the lower line of the trend channel drawn through waves (1) and (3). What is missing is the fifth and final wave.

Roku ‘s Extreme Valuation to Stretch Even Further

Unless a truncation occurs, wave (5) is supposed to exceed the top of wave (3). This means that if the count above is correct we can expect a new record high somewhere north of $500 a share. Once this happens though, two problems would arise.

First, at $500 a share Roku would be valued at over $70 billion or roughly 19 times its expected 2022 revenue. With valuations like these the word ‘bubble’ immediately comes to mind. And second, the Elliott Wave theory states that a three-wave correction follows every impulse.

Instead of celebrating the new high, the bulls should watch out for a notable bearish reversal. Corrections usually erase the entire progress made by the fifth wave. In Roku ‘s case, a ~40% drop to the support area of wave (4) near $300 would make sense. Perhaps even lower.

Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!

New to Elliott Wave?

Elliott Wave principle offers a completely new understanding of what the nature of the markets is, what drives them and what can be derived from their movement. This course is for those of you, who have been looking for an honest Elliott Wave guide, describing the method’s advantages over other trading tools, but not hiding its weaknesses.

Check Video Course    or     Check our eBook


See our Video Course
or check our eBook

Last year over 60k readers trusted EWM Interactive to help them in their trading decisions.

I’m very happy i discovered your service. Thanks so much and keep up the good work!

- Xavier N.

Just loving your analysis. Thank you so much, really wished you add some more currencies to your list You have a client for life :)

- J. Kotzee

I love the way EWM does business: response times & overall friendly demeanor are fantastic... and the prices are very fair. The trade recommendations read like like they come from a seasoned trader that is used to winning. Couldn't ask for more.

- C. Montgomery

I love the way EWM does business: response times & overall friendly demeanor are fantastic... and the prices are very fair. The trade recommendations read like like they come from a seasoned trader that is used to winning. Couldn't ask for more.

- C. Montgomery

I’m very happy i discovered your service. Thanks so much and keep up the good work!

- C. Montgomery

Just loving your analysis. Thank you so much, really wished you add some more currencies to your list You have a client for life :)

- C. Montgomery