Roblox (NYSE:RBLX) shares fell as much as 22% on Wednesday after the company delivered a soft earnings report for its second quarter.
This sell-off has been seen as an opportunity to upgrade RBLX shares at Morgan Stanley and Wedbush.
Morgan Stanley analysts upgraded the stock to Equal Weight as they see a more balanced risk-reward from current levels. They note RBLX has underperformed the S&P 500 this year, mainly due to weaker margins and the uncertainty surrounding future growth.
“While we remain cautious on many of those points, the combination of near-term growth uncertainty and longer term call options leaves us with a more balanced outlook at these levels,” said analysts, who also raised the price target by $4 to $30 per share.
Wedbush analysts upgraded the stock to Outperform to Neutral with a price target of $37 per share. They argue that Roblox “may have the most compelling growth trajectory among the video game names in our coverage universe after taking into account its user base size, its new products, and the potential to revisit its approach to profits.”
“With Roblox shares trading well below our price target after a selloff on Wednesday, the risk/reward profile has become favorable to the upside,” the analysts said in a note to clients.
They argue that investors who remain patient can expect to be rewarded amid anticipated continued growth in revenue. This growth will be driven by the expansion of key user metrics, the introduction of new products, and a more proactive approach to cost control in the future, they concluded.
Roblox stock is trading 2% higher in early Thursday trading. Shares are now up just 3.5% year-to-date.