Roblox (RBLX 5.09%) is coming off a strong year for its interactive content platform. Daily active users hit new highs, and revenue grew 30% year over year in the fourth quarter of 2023. However, there remains skepticism around the company's ability to sustain high growth and monetize the content on its free-to-use platform.
But this could be a great buying opportunity, according to JPMorgan analyst Cory Carpenter. The analyst upgraded the stock from neutral to overweight and raised his price target from $41 to $48. That price target, usually an estimate of where the stock might trade in the next year or so, is 33% higher than the current share price.
Is Roblox stock a buy?
The market doesn't want to give Roblox credit for its recent growth streak for a few reasons. First, much of its content is centered around gaming, and the video game industry isn't growing that quickly right now.
Second, Roblox has an inconsistent operating history. Its top-line growth slowed amid the broader macroeconomic weakness in 2022, and it doesn't have a record of generating a consistent profit yet.
Carpenter sees the market's skepticism as a great opportunity to buy shares in a company with many opportunities to keep growing. He specifically cited Roblox's new revenue streams that it's developing in advertising.
The analyst also likes that Roblox is wrapping up a period of heavy spending, which should lead to a period of strong bottom-line growth. Indeed, management is targeting one to three percentage points of margin expansion through 2027.
The stock has consistently traded around a price-to-sales ratio of 8 over the last two years, so if Roblox can execute to management's outlook for 20% or better top-line growth through 2027, the stock could indeed hit the analyst's target.
