Shares of metaverse-like video game platform developer Roblox (RBLX) finally caught a break last week, bouncing nearly 40% from its ominous lows of $36 and change per share. There’s no denying the strength of the relief rally, but it’s still a tiny blip compared to the epic slide off those highs of $141.60.
Whether this relief rally in speculative growth stocks is another head fake is a real question mark. Every bear market or crash has those big up days that signal a turnaround.
While it’s probably not a good idea to time a bottom in any stock, I do think that the risk/reward to be had in RBLX stock today is too good to pass up for those willing to put up with double-digit percentage weekly, or even daily, moves as we head into spring.
There’s nothing fundamentally wrong with Roblox, the company, amid its vicious ~70% crash. The stock got too expensive, and the valuation was reset accordingly. As the company continues its growth while catering to older audiences (key to the health of its long-term growth profile), I remain bullish on the stock.
Roblox: Attempting to Value That Which Is Hard to Value
There’s no question that it’s tough to value high-growth firms in a rising-rate world. A name like Roblox, which I think has the keys to the metaverse, could easily double down here. At the same time, shares could also get cut in half if this sell-off is nowhere close to being over.
With a Street-high analyst price target of $108 per share, which implies over 131.5% in potential upside, there’s a lot of reward for those comfortable with the risks that come with catching a falling knife in the tech sector. Personally, I think the odds of Roblox doubling from here are much higher than a 50% decline to around ~$23.50 per share. Why?
Roblox is firing on all cylinders, and sooner or later, the stock will reflect the strength going on at the company.
Sure, Roblox’s fourth quarter was lackluster. The valuation was stretched going into the big reveal. However, I think the selling has become overdone. There were some positive takeaways that enforced the longer-term growth story.
Roblox’s Forgettable Fourth Quarter: There Were Positives
First, Roblox is continuing to grow its daily active users (DAUs). While the magnitude of user growth in Q4 was less impressive than prior quarters, it’s worth noting that the quarter saw tough comparables.
As a top at-home entertainment play, it’s tough to match a quarter that saw many geographies endure partial lockdowns. Expectations were way too high going into the quarter, and the wider-than-expected losses shouldn’t have been shocking.
Second, Roblox is gaining traction at the international level. The Asia-Pacific region is contributing to a greater slice of the pie (around ~23% of DAUs), a trend that could continue in future quarters. As conditions normalize and comparables become more realistic, I think Roblox can prove its sellers wrong.
Finally, older gamers are playing Roblox, too. Although Roblox is far from being a firm that’s a go-to option for older audiences, I think time is on Roblox’s side, as it seeks to “grow up” with its young userbase. Perhaps a push into the metaverse could allow Roblox to become more appealing to a wider range of age groups?
In any case, Meta Platforms’ (FB) Horizon Worlds platform could be a sample of what to expect from Roblox if it chooses to focus on virtual-reality experiences. Undoubtedly, having a behemoth like Meta chase down your chase of market share has to be viewed as a compliment.
Wall Street’s Take
Turning to Wall Street, RBLX stock comes in as a Moderate Buy. Out of 11 analyst ratings, there are eight Buys, two Holds, and one Sell recommendation.
The average Roblox price target is $71.91, implying an upside potential of 53.6%. Analyst price targets range from a low of $45.00 per share to a high of $108.00 per share.
The Bottom Line on Roblox Stock
Wall Street remains bullish on RBLX stock moving forward. The 14.3 times sales multiple on shares is not that expensive, given the caliber of Roblox’s long-term growth profile and compelling attributes that shined through in its tough fourth quarter. Roblox stock is nothing short of intriguing on this dip.
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