Shares of mobile game company Roblox are up about 60% since its IPO in March.
Robust figures for the third quarter propelled the share price to record levels at the end of November. Since then, however, RBLX stock has come under considerable pressure.
Long-term investors may want to consider buying the dips in RBLX stocks, especially if they fall toward $90.
Investors in the mobile gaming company Roblox (NYSE:) have posted solid double-digit gains since its initial public offering (IPO) earlier this year. On March 10, RBLX stock began trading at an opening price of $64.50. Now it stands at $102.77 as of Wednesday, up about 60%.
On November 22, RBLX shares passed over $141 and hit an all-time high. But since that peak, the share price has fallen about 25%. The stock's 52-week range was $60.50 – $141.60, while its market cap is $61.7 billion.
The company released its third quarter financial data on Nov. 8. Sales reached $509.3 million, a 102% year-over-year increase. Average daily active users (DAUs) reached 47.3 million, up 31% year-on-year. The diluted loss per share came in at 13 cents versus a loss of 26 cents per share in the third quarter of 2020.
About the results, CFO Michael Guthrie said:
"Growth across all of our core metrics – DAUs, hours and bookings – showed strong year-over-year growth despite overlapping periods impacted by COVID-19 and seasonality back to school… Based on from our October results, we seem to be off to a good start to the last quarter of the year.”
Prior to the release of the RBLX stock, the stock was about $77. Then, on November 15, Roblox released key statistics for November. DAU stood at 49.4 million, up 35% year-on-year. Also, revenue was estimated to be between $184 million and $187 million, an increase of about 85% year-over-year. Then, on November 22, it hit a record high of $141.60. The price increase was partly due to the strong quarterly and November figures.
But another important reason was the tailwind of the growing interest in the metaverse. Roblox bulls believe the platform will grow beyond gaming to provide more virtual and 3D experiences that will capitalize on the growth of the metaverse — a market likely to exceed $800 billion by 2028, with a compound annual growth rate (CAGR) of more than 43%.
However, since November 22, profit taking has started. Coupled with the volatility in the broader markets due to the Omicron variant, as well as expectations that the Fed could tighten monetary policy soon, RBLX stocks have come under significant pressure. Busy. On December 22, the stock closed just under $103.
What to Expect from Roblox Stock
Of the 10 analysts polled via Investing.com, Roblox stock has a ]“ surpass" rating.
Analyst Consensus Estimates Polled by Investing.com
Chart: Investing.com
Analysts also have a median 12-month price target of $116.36 for the stock, representing an increase of approximately 10% from current levels. The 12 month price range is currently between $70 and $150.
However, according to a number of valuation models, such as those that consider P/E or P/S multiples, the average fair value for RBLX stock through InvestingPro is $69.12, representing a potential decline of approximately 35 percent. % implies.
Graph: InvestingPro
In addition, we can look at the financial health of the company determined by ranking more than 100 factors relative to peers in the communications services industry. In terms of growth and cash flow health, Roblox scores 3 out of 5 (top score). Overall performance is rated "fair".
The latest P/B and P/S ratios for RBLX stocks are 102.7x and 36.7x. By comparison, those metrics for peers are 3.2x and 7.5x. This means that, even for a growth name, the RBLX stock has a foamier valuation level than its competitors.
In the coming weeks, we expect Roblox stock to trade in a wide range, possibly between $90 and $110. Once it has established a foundation, it could take another step up. Roblox bulls with a two- to three-year horizon that aren't concerned about short-term volatility may want to consider buying the stocks around these levels for long-term portfolios. The target would be $116.36, the analysts' consensus expectation.
Alternatively, investors may consider buying an exchange traded fund (ETF) that has RBLX as a holding. Examples include: the Roundhill Ball Metaverse ETF (NYSE:), the Invesco Dynamic Software ETF (NYSE:) or the VanEck Video Gaming and eSports ETF ( NASDAQ:).
Finally, those who have experience with options strategies and think there could be further declines in RBLX stocks may prefer to do a bear put spread.
Most option strategies are not suitable for most retail investors. Therefore, the following discussion is provided for educational purposes only and not as an actual strategy to be followed by the average retail investor. hitting new highs in the coming weeks might consider selling a cash-backed put option in Roblox stock – a strategy we employ regularly.
Let's assume that an investor wants to buy Roblox stock, but does not want to pay the full price of $102.77 per share. Instead, the investor would prefer to buy the shares at a discount in the coming months.
One option would be to wait for RBLX stock to fall, which may or may not be. The other option is to sell one contract of a cash-backed Roblox put option.
So the trader would normally write an at-the-money (ATM) or an out-of-the-money (OTM) put option while simultaneously setting aside enough money to buy 100 shares of the stock.
Let's assume the trader executes this trade until the option's expiration of January 21, 2022. Since the stock is $102.77, an OTM put option would have a strike of $100.00.
Thus, the seller would have to buy 100 shares of RBLX at the $100.00 strike if the buyer of the option were to exercise the option to allocate it to the seller.
The RBLX January 21, 2022, 100.00 strike put option is currently offered at a price (or premium) of $5.80.
An option buyer would have to pay $5.80 X 100, or $580, as a premium to the option seller. This premium amount belongs to the option seller, no matter what happens in the future. The put option will stop trading on Friday, January 21.
The seller's max profit is this premium amount if RBLX shares close above the strike price of $100.00. If that happens, the option will expire worthless.
If the put option is 'in the money' (meaning the market price of RBLX shares is less than the strike price of $100.00) before or upon expiration on January 21, this put option can be assigned. The seller would then be required to purchase 100 shares of Roblox stock at the put option's strike price of $100.00 (i.e. $10,000 in total).
The breakeven point for our example is the strike price ($100.00) minus the option premium received ($5.80), i.e. $94.20. This is the price at which the seller would lose money.
Cash-secured put selling is a fairly more conservative strategy than buying a company's stock at the current market price. This could be a way to take advantage of any jerkiness in Roblox stock in the coming weeks, especially around the earnings date.
Investors who end up owning RBLX shares as a result of selling puts may further consider setting up covered calls to increase the potential return on their shares. Thus, selling cash-backed puts could be considered the first step in owning stock.
