There are currently many eyes on ROKU. Some say that too much attention is never good for a stock and it often leads to failed breakouts. I say, sometimes great setups look like great setups and there is no reason to overthink and overcomplicate things. I am long ROKU for the following reasons:
1) It crushed earnings estimates two weeks ago: analysts expected a significant loss, ROKU reported a small profit. Big earnings surprises typically lead to big moves.
2) The market reacted positively to ROKU’s earnings report: it gapped up and it closed near the highs of its earnings day’s price range. The stock has consolidated in a tight range near its all-time highs ever since.
3) There are plenty of disbelievers in the stock and the company’s product. As a result, 13% of its float is short. Short interest is often a source of future demand, especially when short sellers are forced out of their positions when a stock keeps climbing higher.
4) We are in a bull market, which means that most stocks setting up for a breakout are likely to break out and many breakouts are likely to follow through.
A break over $60 might lead to a quick move to $65-70. A close below ROKU’s 10-day EMA (currently near 55) would invalidate my thesis.
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The bull market in the U.S. is alive and well with retailers and consumer stocks leading the way. Apple keeps rising despite its enormous size. Nike and Lululemon broke to new all-time highs. Weed stocks have been on fire ever since Constellation Brands bought 40% of Canopy Growth. Dip buyers are starting to get active in Netflix, Nvidia, and Chinese stocks. Highly-shorted stocks like MTCH, DDD, and PETQ are squeezing higher. Overall, there are a lot more reasons to be bullish than bearish.
Keep an eye on PETQ tomorrow. They make pet medications and are growing at an impressive pace: 98% quarter-over-quarter sales growth and 39% earnings per share growth. PetIQ just absolutely crushed earnings estimates, reporting $0.64 while the market expected 0.38! They also raised their full-year guidance. More importantly, the stock is up 15% after the close and it is trading at new all-time highs near $32. 37% of its tiny 14-million-shares float is short. There’s a decent potential for a short squeeze in the next few days with a target 35-40.
Here are some interesting comments on Twitter that add a fresh perspective to PetIQ’s numbers:
Crazy $PETQ trades just 1.8X EV/Sales while other animal medication peer $HSKA trades 5.4X and w/ much slower growth!
While most emerging markets are under pressure, U.S. stock indexes are still trading near all-time highs. How long can this decoupling persist?
Can the record corporate earnings and sales growth alleviate the fear of emerging markets’ contagion? So far the answer is a resounding Yes as dip buyers continue to be active on the slightest pullbacks.
It’s not all sunshine and rainbows in the U.S. markets either. While retailers and software stocks are crushing estimates and breaking out, homebuilders are near 52-week lows. Maybe rising interest rates are finally starting to matter for some sectors or at least the market believes they will matter for future earnings.
Match Group, which owns Tinder and various other dating applications crushed earnings estimates again and it is trading near $44 per share in the after-hours session. They reported earnings per share of $0.41 vs $0.16 for the same quarter last year. Analysts expected $0.35. The surprise is not huge but it might be enough to fuel some upside momentum tomorrow.
Keep in mind that 50% of MTCH’s 62 million shares float is short. The short sellers are backed against the wall and they will try to fade MTCH tomorrow morning. If MTCH can stay above $45 after the market opens on Wednesday, we might see it attack its all-time highs near 48.65. Above it, there’s a potential for a monster short squeeze.
Here’s Tinder’s Chief Product Officer, Brian Norgard on the latest numbers:
-Tinder average subs were 3.8MM in Q2 2018, increasing 299,000 sequentially & 1.7 million YOY -Total Revenue grew 36% over the prior year quarter to $421MM -Operating income was $150MM, an increase of 81% over the prior year quarter