Roblox (RBLX 1.19%) is an early leader in the metaverse space that has seen some volatile trading since going public in March 2021. Spurred by some strong engagement numbers and some rebound momentum for growth stocks, the company's share price has rallied roughly 27% this year. On the other hand, the stock still trades down roughly 73% from its peak valuation level.

Should investors be building positions in this innovative software company in preparation for a much bigger stock recovery, or is this risky growth stock's valuation still too rich? Read on to see why two Motley Fool contributors have very different takes on whether Roblox stock is a worthwhile buy right now. 

Roblox characters in a city environment.

Image source: Roblox.

Bull: Roblox's staying power suggests incredible potential

Keith Noonan: Roblox stock soared at the height of pandemic-driven social distancing and isolation conditions, but the company's valuation came crashing down as these performance tailwinds evaporated and investors generally became more risk-averse. On the other hand, the metaverse leader is back to setting engagement records, and recent performance suggests the stock has big upside. 

Daily active users (DAUs) on the company's platform rose 19% year over year to reach 58.8 million in last year's first quarter, and total engagement hours on the platform climbed 18% to hit $12.8 billion. Crucially, the company has continued to make impressive engagement gains this year. Breaking it down by month this year, estimated DAUs came in at 65 million in January, 67.3 million in February, and 66.2 million in March.

With the platform continuing to attract new users at an encouraging rate, it seems clear that Roblox has staying power. First launched in 2006, the highly active virtual world plays host to a huge range of content and experiences and also functions as a social interaction hub for its users. Because creators can make and monetize their own games and experiences on the platform, new content is being added all the time. Thanks to this dynamic, Roblox can offer incredible novelty and is perfectly set up to grow and evolve with its user base.

While the company's current business model primarily revolves around gaming experiences and the sale of its in-world virtual currency, Roblox also has other content offerings and avenues to monetization. Platinum-selling musical artists, including Mariah Carey, David Guetta, and Elton John, have already performed live concerts hosted in Roblox, and the company has been building an advertising component to its metaverse that still has incredible potential.

Having a thriving virtual world is still a far-off dream or ambition for many large tech companies, but it's already a reality for Roblox. The company's ground-floor leadership in the metaverse space could be the foundation for incredible long-term performance.

Bear: Roblox shows little evidence of economies in scale

Parkev Tatevosian: My bear case on Roblox stock centers around the company's difficulties following the economic reopening. Admittedly, Roblox thrived during the early stages of the pandemic. With limited entertainment options outside the home, people played games online more. As a result, Roblox experienced a surge of new customers and revenue.

Indeed, from 2020 to 2021, Roblox's revenue soared from $924 million to $1.9 billion. In other words, the company's revenue jumped by 108%. Despite abundant growth, Roblox's operating losses worsened to $495 million in 2021 from $266 million in 2020. Along with the economic reopening worldwide came a surge in demand for away-from-home activities. People are making up for lost time outdoors, going to theme parks, restaurants, and concerts.

That has been bad news for Roblox. Revenue growth slowed dramatically in 2022 to 15.9% from 108%. If you guessed the slowing growth would lead to steeper losses, you would be right, as operating losses ballooned to $924 million in 2022.

There is no telling if or when the company will ever become profitable. Investors have little evidence of economies in scale as Roblox's revenue has soared, and its operating losses have worsened. It might be a popular platform that attracts millions of daily active users, but turning a popular consumer product into a profitable investment is not as easy as it might sound. Investors might want to wait for more proof of progress on profitability before purchasing shares of Roblox stock.

Is now the right time to invest in Roblox stock?

Roblox stock undoubtedly falls into the high-risk, high-reward category. While the company has been posting strong engagement results lately, the business still isn't profitable, and the company's losses have been expanding lately. If betting on an eventual shift into substantial profitability at a time when losses are mounting sounds too speculative, it's probably best to pass on buying shares.

But investors with high risk tolerance or an interest in the metaverse may find a lot to like about the stock, even though it has a growth-dependent valuation. The Roblox platform has proven staying power at this point, and the company's early leadership in the metaverse could help open up incredible opportunities over time. For growth-oriented investors with above-average risk tolerance, Roblox stock could be a worthwhile buy right now.