It's hard to find winners in the current stock market. So when a company's shares surge more than 20% in a single day, many investors ask: Is it too late to buy?
Undoubtedly, more than a few people are asking that question about Roblox (RBLX 1.60%) this week. Let's look at what drove the stock higher, its long-term prospects, and whether it's a buy even after its recent surge.
Image source: Getty Images.
Roblox's user metrics continue to soar
On Monday, Roblox reported its September user metrics, which showed higher-than-anticipated growth in daily average users (DAUs) and engaged hours.
| Metric | September 2022 | September 2021 | Change |
|---|---|---|---|
| Daily active users | 57.8 million | 47.0 million | 23% |
| Hours engaged | 4.0 billion | 3.4 billion | 16% |
Data source: Roblox.
These metrics are of paramount importance for Roblox, which operates an online, metaverse-style gaming network. Since the company generates between $3.67 and $3.79 per active user, its user count represents an early read on its upcoming revenue and earnings.
The company has long been pigeonholed as a pandemic stock, yet its September metrics call that thesis into question. Its user base continues to grow steadily. Meanwhile, bookings (sales of Roblox's in-game currency that are not recorded as revenue until a user spends the currency) rose between 11% and 15% year over year in September -- despite ongoing adverse foreign exchange effects due to the strong dollar. In fact, the company estimates that bookings would have risen between 17% and 21% without these foreign exchange headwinds.
All in all, the September user metrics painted a clear picture: Roblox's core business remains quite strong.
Valuation has bounced back, but only slightly
So, Roblox's business is looking good, but is it too late to buy? Let's examine Roblox's valuation for some clues on whether the stock is undervalued.
Roblox was incorporated back in 2004, but it didn't go public until March 2021. Shares had nearly doubled by October 2021 but have fallen significantly since then. Even after this recent rally, shares are down 59% year to date.
However, for long-term believers in Roblox, 2022 could prove to be a golden opportunity to accumulate shares at a relatively cheap price.
RBLX PS Ratio data by YCharts
In its short time as a public company, Roblox shares have traded at an average price-to-sales (P/S) ratio of 21.5. Yet, the stock's current P/S ratio is much lower at only 11.2. While that isn't cheap on an absolute basis -- the P/S ratio for the entire S&P 500 is only 2.3 -- Roblox's P/S ratio is cheap relative to its historical long-term average.
Is Roblox a buy now?
I've long been a fan of Roblox. I think that the company's modest, low-cost version of the metaverse has staying power. Roblox's recent September metrics seem to illustrate exactly that.
What's more, the company is continuing to diversify how it generates revenue by expanding its ability to sell in-game ad space and partnering with other brands on virtual and physical merchandise.
For all those reasons and more, I think Roblox remains a long-term buy.
