Why Did Roku Stock Drop 10% In A Week?

by Trefis Team
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Roku stock (NASDAQ: ROKU) has dropped almost 10% in just the last one week and currently trades at $428 per share. The recent decline was driven after reports surfaced of Cathie Wood, the founder and CEO of ARK Investment Management, selling Roku shares from ARK’s exchange-traded funds. Wood has off loaded half a million shares of Roku since the end of June 2021, with total sales amounting close to $239 million. The news assumed significance as less than a month back Wood had said that investors were making a mistake by selling so-called stay-at-home stocks like Roku. But will Roku’s stock continue its downward trajectory over the coming weeks, or is a recovery in the stock more likely?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last four years, returns for ROKU stock average over 11% in the next one-month (21 trading days) period after experiencing a 10% fall over the previous one-week (five trading days) period. Also, there is a 57.5% probability that the stock will give a positive return in the next one week. But how would these numbers change if you are interested in holding ROKU stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test ROKU stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF ROKU stock moved by -5% over five trading days, THEN over the next 21 trading days, ROKU stock moves an average of 11 percent. Also, there is a 58% chance that the stock will give positive return in the next one month following a 5% drop over the previous week.

Some Fun Scenarios, FAQs & Making Sense of ROKU Stock Movements:

Question 1: Is the average return for Roku stock higher after a drop?

Answer:

Consider two situations,

Case 1: Roku stock drops by -5% or more in a week

Case 2: Roku stock rises by 5% or more in a week

Is the average return for Roku stock higher over the subsequent month after Case 1 or Case 2?

ROKU stock fares better after Case 1, with an average return of 10.9% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 8.3% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Roku stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Roku stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For ROKU stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ROKU stock appears to be an exception to this general observation.

ROKU’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Roku stock by changing the inputs in the charts above.

Want upside from growing digitization post Covid-19, but don’t want to pay a big premium for tech stocks? Check out our theme on Value Tech Stocks

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

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