For investors looking for high octane growth, two small-cap technology stocks turn out to be a huge gamble this year
The shares of Roku (NASDAQ 🙂 and Shopify (NYSE 🙂 have each increased more than 100% in the last 12 months, defying trade tensions, macroeconomic headwinds and the overall volatile trading environment for technology stocks.
Why are investors so fond of these names? And are there any more positive points left after their dazzling profits?
Roku: warming up after 200% rally
Roku, which became public in 2017, sells devices that allow users to stream video on their televisions. It also sells ads on the Roku channel and allows TV channels to sell spots targeted at specific audiences
Over the years, Roku has seen explosive growth as a technology platform already pre-loaded on certain TVs. According to Bloomberg data, 10 of the 20 most sold TV & # 39; s on Amazon are TVs connected to Roku.
To give depth to its revenue base, Roku also sells advertisements for its free streaming product called The Roku Channel, which offers a variety of network and other TV shows and entertainment.
Roku has been a volatile stock since its market debut in 2017. The price rose more than 40% in the first nine months of 2018 before the year ended with the same amount. And so far in 2019, Roku has tripled in value, better than almost any other technology show. The shares closed at $ 91.37 yesterday, an increase of 0.9%.
But after this remarkable rally, some analysts are warning of red flags when the competition is about to become: tech giants such as Apple (NASDAQ 🙂 and Amazon.com (NASDAQ 🙂 target the video streaming market in search of a bigger one part of the pie.
Analysts ask for caution from Citigroup, Guggenheim Securities and investment bank Stephens highlighting the recent run and higher valuation, making the shares vulnerable to even a small mass in it. On average, analysts predict a 14% dip in Roku & # 39; s current market price over the next 12 months.
Shopify: successful driving on the e-commerce wave
The Canadian supplier of e-commerce platform Shopify has consistently proved his critics wrong. The Ottawa-based company, which makes tools that mainly allow small businesses to create websites and engage in multi-channel trading, has become stronger after each correction in the last 12 months, which has refuted many growth rate calls.
Yesterday, with 1.5% closed at $ 304.54, shares have risen more than 125% this year, leaving the much larger rival, Amazon – only 26% – far behind. Since we wrote about it in March, Shopify shares have won around 60%.
One of the strengths of Shopify is that it offers small and medium-sized businesses a very effective and cost-efficient way to build a secure online store. The platform covers all hardware security, data backup and payment processing aspects of the company, allowing traders to focus purely on their core activities.
The most recent catalyst for continuing Shopify & rally was the announcement in June that it plans to spend $ 1 billion on a chain of fulfillment centers that would place it in direct competition with Amazon.com.
How much higher can the shares go from here? The average target price of 25 analysts covering the shares is $ 319 for the next 12 months, about 6% above where it is currently traded. The stock is now trading around 28 times behind, making Wall Street analysts nervous about the future direction.
At least five analysts have adjusted the company down in the last two months, according to Bloomberg. In almost all cases, the sky-high share price was the main concern. "We are now seeing a more limited upward impact on equities over the next 12 months," Wedbush analyst Ygal Arounian said in a note last week that the stock was buying out to neutral.
Bottom Line
Although both Roku and Shopify have proven to be a good buy for long-term investors, their current valuations do not make them attractive in the short term, especially in this late bull cycle. Investors should pay attention to analysts and pay attention and wait on the sidelines before these stocks become attractive again.
To achieve a new leap higher, almost everything should go well for these names. In our opinion, that seems to be a risky proposition in this market.
