Roblox (RBLX) Stock Price prediction: Valuation seems too high to buy but Stifel says $85 target

Roblox shares suffered on Thursday as the broader market and tech in particular suffered at the hands of higher yields. RBLX shares finished down 12% at $67.30. Currently, at the time of writing on Friday, Roblox shares are recovering some gains and trading up nearly 4% at $69.76. Stifel has issued a bullish note on Roblox shares, starting Roblox with a buy rating and giving Roblox shares an $85 price target.

Roblox is a social gaming phenomenon with hundreds of millions of players globally. Roblox (RBLX) is looking to expand its offering into entertainment, toys, and other social gaming aspects. Roblox has experiences that are built by developers and used by hundreds of millions of players globally. Roblox was set up in 2004 by David Baszucki and Erik Cassel. Roblox has over 8 million developers and average daily users of 37 million according to Reuters. Roblox is based in San Mateo, California.

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Roblox Stock forecast

Roblox certainly has impressive growth numbers as the global lockdown increased its target teen and tween playing group. If the outlook given by Roblox is achieved it will be an impressive rate of growth.

Roblox aims for daily active users to grow by over 60% and revenue to grow by over 100% for Q1 2021 year on year, in its most recent outlook. 

These figures are impressive but Roblox trades at a very high valuation relative to peers in the gaming industry. While it may be revolutionizing social gameplay and its ability for spin-off revenue may be yet fully tapped, this high valuation represents a problem in the current environment. High growth stocks command high valuations but in a potentially inflationary environment, these high growth stocks tend to struggle. The US 10 Year and University of Michigan inflation expectations index are all flagging higher interest rates and inflationary pressure, despite what the Fed may say. 

While Roblox may have a compelling investment case the valuation is too high currently for me personally. I do like the stock and it's potential but there may be more attractive entry points ahead if the broader tech market continues to struggle.

I am of course speaking as an investment proposition, long term. Short-term traders can well find reasons to buy the stock as it has some nice momentum swings, just manage your risk accordingly and don't get caught up in a frenzy, have a gameplan and stick to it.

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