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Roblox faces uncertainty as a growth stock despite solid fundamentals

Roblox faces uncertainty as a growth stock despite solid fundamentals
Jordan
Major
7 months ago
4 mins read

Roblox (NYSE: RBLX) closed Monday’s market session at $111.77, down -4.12 on the day and down -6.59 (-5.57%) for the last five days.

The stock seems to be affected by the macroeconomic uncertainties in the market surrounding growth stocks. Notably, the Federal Reserve may be pushed to raise interest rates faster than expected if inflation persists, and the value of growth stocks tends to decline as interest rates rise.

Nevertheless, despite the recent drop caused by doubts in the market, the company’s stock is still trading above its 20-day and 50-day simple moving averages (SMA), which stock traders often use as indicators of an uptrend.

RBLX 20-50-200 SMA lines chart. Source. Finviz.com data. See more stocks here.

Typically, previous performance and a price above the 20-day SMA would indicate short-term bullish momentum; however, in the past month, RBLX has traded in a range of $103.82 – $141.60 and is presently trading towards the lows of this range.

Using a combination of various trend lines in different periods, a support zone at $111.76 is established as volume has begun to decrease. Resistance at $122.30 is noted from a trend line in the daily time frame, while resistance at $124.78 is observed from a horizontal line in the daily time frame.

The experts view on Roblox

Ten Wall Street analysts have set an average price target of $114.78 for the company for the next 12 months. $150 is the most optimistic prognosis, while $70 is the most pessimistic. The average price goal implies a gain of 2.69 % over the stock’s most recent close of $111.77 per share.

RBLX  analysts’ price target. Source: TipRanks.com

In total, seven of the ten analysts suggest that investors “Buy” RBLX stock, with two analysts recommending that investors “Hold” and one analyst advising to “Sell.” 

Overall, RBLX is rated as a ‘Moderate Buy‘ by most analysts, indicating that it has a 2.69 % upside potential from its most recent close.

Roblox and the pandemic

For the third quarter, the company’s profits completely reversed the sideways trend and sent the stock soaring once more. The reason for the volatility may be down to investor opinion against so-called “pandemic stocks.”

Essentially, a pandemic stock is one in which the company’s prosperity is tied to COVID-19 circumstances and in which RBLX may not sustain its success after the pandemic.

So far, the growth fueled by lockdowns with Roblox has been able to maintain its momentum with the number of users is growing, as is the number of hours spent on the game. Since the firm went public, revenue has increased by more than threefold. 

Roblox had positive third-quarter results

Earnings for the third quarter of 2021 were well received by investors and for good reason. Roblox’s net bookings (the company’s sales statistic) reached $637.8 million in the third quarter, resulting in free cash flow production of $170.6 million for the quarter. 

Despite these encouraging developments, there are still significant risks to the stock’s price, which has been volatile, to say the least, since it went public. The macroeconomic fundamentals that are associated with growth stocks are being questioned. 

First and foremost, the organization must continue to demonstrate that the platform can attract and retain more participants over a longer period. Consumer preferences are notoriously fickle, and any slowdown in growth might result in a major decline in the value of a company’s stock price. 

Although the platform is mostly intended for children at this time, Roblox is developing one of the most natural metaverse platforms available. If you consider that the trend toward increasingly immersive and virtual worlds will continue in the future, Roblox may be a stock to keep an eye on in the future.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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Jordan Major
Author

Jordan is an investor and market analyst. He's passionate about stocks, ETFs, blockchain, and digital assets. At Finbold.com, he delves into the technicalities to obtain future trends for new market traders and gives insights into user-friendly platforms for beginners.

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