Roku Stock Falls 16% In A Month – Here’s Why

by Trefis Team
+38.73%
Upside
324
Market
450
Trefis
ROKU
Roku
Rate   |   votes   |   Share

Roku stock (NASDAQ: ROKU) dropped almost 16% in the last one month and now trades at $335 per share. The company’s shares tumbled following the Q2 2021 financial results in early August, as investors became concerned about a sequential dip in usage and a warning that margins will come under pressure as supply chain constraints and cost increases eat into its bottom-line performance for the next couple of quarters. Streaming hours in Q2 2021 were at 17.4 billion, marking a decrease of 1 billion hours from Q1 2021. This was mainly because of more people venturing out as the Covid-19 crisis seemed to be initially subsiding Q2, before the Delta variant surge brought many back to home confinement. After the results, a couple of analysts downgraded the target price for Roku. Initially the stock was also affected as Cathie Wood, the founder and CEO of ARK Investment Management, sold Roku shares from ARK’s exchange-traded funds. Wood had off loaded half a million shares of Roku since the end of June 2021, with total sales amounting close to $239 million. This sale assumed significance as just a month before it, Wood had said that investors were making a mistake by selling so-called stay-at-home stocks like Roku.

But, after the recent decline, 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 more than 14% in the next one-month (21 trading days) period after experiencing a 16% fall over the previous one-month (21 trading days) period. Also, there is a 66.5% probability that the stock will give a positive return in the next one month. 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 Engine 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 10 percent. Also, there is a 56% 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 9.9% 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 7.8% 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 five 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 five 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.

 

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016.

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

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!