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I’m going public – with my favorite IPO of the year

I have a favorite among all of the 400 or so traditional IPOs – and all of the 600 or so “de-SPAC” names that went public through special acquisition companies in 2021.

The only thing is, my favorite IPO wasn’t actually an IPO. It was a “DPO” or “Direct Public Offering”. I’m talking about Roblox (RBLX), which followed the example of another “sarge” name, Palantir (PLTR), which allowed existing shareholders to sell existing shares immediately, thereby removing the traditional lock-up period.

Roblox is a 3D educational game company – a “Metaverse” -type company that came out before the word Metaverse became a commonly used term. The stock, starting at $ 45, opened on the New York Stock Exchange in March after already raising funds privately and leaving a host of investment bankers at the altar.

The basic game

Roblox is expected to release fourth quarter performance in early March. A consensus among sell-side analysts covering the name is a loss per share of $ 0.14 on sales of $ 763 million. That sales figure, if correct, would be 146% higher than the same period last year, which would be the fifth straight quarter of three-digit (percentage) year-over-year sales growth. Is the stock expensive? I think so. This is a clear case of paying for growth.

The stock is trading at 40 times the last sales of the 12 months and over 100 times the book value. The margin is obviously still negative. However, operational and leverage free cash flow are indeed positive. The balance sheet is also remarkably clean. For the most recent quarter, the company had more than $ 1.9 billion in cash and total debt was $ 244 million. With net “income” of $ 74 million for the third quarter, if need be, this company could burn cash for a while to work toward profitability. Oh, and just one FYI, roughly 6% of the total float is held in short positions. Not enough to cheer the monkeys on, but too big to ignore. The company stands at a current ratio of over 1.3 which is fine.

Roblox ranking

I can find four, five star (on TipRanks) sell-side analysts with a public opinion on RBLX. There are three “Buy” or equivalent ratings and one “Hold” rating. The price targets are everywhere from a high of $ 150 (Brian Nowak of Morgan Stanley) to a low of $ 82 (Andrew Uerkwitz of Jefferies). The average of the four goals is $ 114.50.

Tranche of a trader

I bought a trader’s tranche earlier in the slump to take advantage of what I think was a tax loss sale. The original intent was to get rid of the position in early January, when the “Santa” Claus “rally period ends, and certainly before the third week of January, which historically is the start of a three-week dark for the S&P 500. (You can The S&P 500 has negative returns on an average year in weeks three, four, and five of the new year, with week five being the weakest. There are, on average, softer individuals weeks than any week of it, but this is often the one softest period of the market calendar year.) In short, I want to get out of these stocks by then and then, if the price is right, get back in sometime in February because I like the name.

The technology

Readers will find that the Moving Average Convergence Divergence (MACD) daily oscillator and full stochastic oscillator are pretty weak right now. The stock  -pears to have found support at the 61.8% Fibonacci retracement level of the overall DPO through the November rally. Note that the shares never traded at the $ 45 DPO price.

However, I think we need to keep an eye on the unfilled g – between $ 79 and $ 94 that emerged earlier this month. The top of this g – had only filled slightly before Fibonacci support entered. My thought is that this area could fill up during those three weeks of darkness that will allow for a for-profit rally after that. I know: many moving parts. Maybe if I just have to play checkers I’ll play chess. Even so, chess is a lot more fun than checkers, and figuring out what the algorithms do before they do it makes us better than them. Go people.

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