Roku's Rough Week: A Constructive Pullback For The Stock?

Roku Inc ROKU shares have experienced a steady sell-off this week, culminating in a 20% drop on Friday. Here’s a closer look at the fundamental headlines behind the sell-off and the stock’s technical outlook heading into next week.

Negative Headlines

On Wednesday, The Verge reported that Facebook, Inc. FB is preparing to launch a clip-on camera for use in video calling, content co-watching and AR gaming. Facebook’s Portal TV could be a major threat to Roku devices.

That same day, Comcast Corporation CMCSA announced a new free set-top box for cord-cutters that could also be a direct competitor to Roku.

Wall Street Reacts

Several analysts stepped in to defend Roku following the negative headlines.

D.A. Davidson analyst Tom Forte reiterated his Buy rating and $185 price target for Roku.

“We recommend investors purchase shares and take advantage of yesterday's pull-back, down roughly 14% at the close," Forte wrote.

Guggenheim analyst Michael Morris reiterated his Buy rating and raised his price target from $119 to $170. Morris said Roku occupies a “rare position” in streaming video and remains in the early stages of building a global growth platform, Morris said.

However, Pivotal Research analyst Jeffrey Wlodarczak initiated coverage of Roku with a Sell rating and $60 target.

"The problem going forward, however, is that while the large internet players have realized the importance of control of the mostly video pipe into the living room, now the players that actually control the dominant data pipe into the household in the U.S. (Comcast, Charter, Altice) have as well," Wlodarczak said.

Benzinga’s Take

Roku is down about 35% since a record high close in early September, but the stock is still up more than 300% from a low close of $27.17 last December.

From a technical standpoint, Roku’s sell-off this week did a lot of damage to the stock’s chart in the near term, taking out support at $140 and $130 and driving the stock to its lowest level since early August. On a positive note, however, Roku fully closed the gap created following its earnings beat in August, making the sell-off a potentially constructive pullback for the longer-term technical outlook.

Traders should watch to see if Roku shares bounce in early trading next week, potentially signaling the gap fill was a potential technical entry point.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Pivotal Research Explains Roku Bear Thesis

Analyst Defends Roku After Comcast Product Launch