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Roblox’s share price just soared above $100. Is now the time to buy the stock?

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Yesterday, shares in US video gaming platform company Roblox (NYSE: RBLX) rose a massive 42%. This pushed the share price up to just below $110, around 60% higher than the price when the company came to the market in March via a direct listing.

So, why did the Roblox share price surge so spectacularly yesterday? And is this a stock I should consider for my growth portfolio?

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Why Roblox’s share price just spiked higher

The reason the RBLX share price spiked higher yesterday was that the company posted a very strong set of third-quarter results on Monday night.

For the quarter ended 30 September, revenue increased 102% year on year to $509.3m, while bookings increased 28% year on year to $637.8m. Average daily active users (DAUs) was up 31% year on year to 47.3m, while ‘hours engaged’ increased 28% year on year to 11.2bn. 

These are very impressive numbers when we consider that in the third quarter of last year, many people were stuck at home on lockdown. Unlike many other lockdown beneficiaries, which have struggled recently as the world has reopened (just look at the Peloton share price), Roblox seems to be going from strength to strength.

It’s clear that even as users revert back to pre-pandemic routines and behaviors, Roblox remains an important part of their day,” wrote management in a letter to shareholders.

Investors were also impressed with the commentary in relation to the company’s October performance. “Based on our October results, we appear to be having a great start to the last quarter of the year,” said CFO Michael Guthrie. This commentary suggests that the company could be set to deliver a big Q4 performance.

Should I buy RBLX shares now?

While Roblox has strong momentum right now and looks set for further growth in the years ahead, I’m not totally convinced that the stock offers an attractive risk/reward proposition right now.

One issue for me is the high valuation. This year, analysts expect the company to generate revenue of $2.7bn (it could beat this estimate). That means that at the current share price and market cap ($63bn), the forward-looking price-to-sales ratio is about 23. That’s high and doesn’t leave much of a margin of safety.

Another issue is the lack of profitability. This year analysts expect the group to post a net loss of $437m. Next year, they expect a net loss of $397m. This adds risk to the investment case. If bond yields start to rise again and tech stocks take a hit, I’d expect the share price to be very volatile given the lack of profits here.

I’ll point out that I do think Roblox is an interesting company with a lot of potential. At some stage in the future, I may invest in it as I’m quite bullish on the prospects for the video gaming industry as a whole. However, given the high valuation here, there are other stocks I’d prefer to buy right now.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Peloton Interactive. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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