The last couple of months have not been a fun time to own Roblox (RBLX) stock. From the end of November 2021 to the end of January 2022, Roblox shares were cut in half — plummeting 54% in two short months as investors fled shares of "risky" growth stocks.

The good news, though, is that thanks to this 54%-off sale, investors now have an opportunity to buy Roblox at prices not seen since the time of the company's March 10 IPO. And one analyst thinks investors should take advantage of this opportunity.

In a recent research note, Stifel analyst Drew Crum made the argument that investors' "rotation out of tech/growth/high valuation names" has created an attractive entry point into Roblox shares. Despite a "longer-term fundamental outlook [that] is generally unchanged" since the IPO, Roblox's share price has now changed quite a bit. Shares of the gaming platform now cost just 9.3 times next year's "bookings," when — in Crum's estimation — a valuation of 18x 2023 bookings would be more appropriate.

In Roblox's case, by the way, "bookings" refers to customers' purchases of "Robux" virtual currency. Such bookings will be counted as revenue by the company once customers have spent the Robux to acquire virtual items or make other purchases on the Roblox platform.

Acknowledging that Roblox's stock value has been damaged by investors' sudden aversion to growth stocks, Crum tweaked his price target on the gaming company's stock lower by 18%. Still, at a new estimated value of $110 per share, Crum's new price target still implies that Roblox stock could rise 67% this year. (To watch Crum's track record, click here)

But what makes Crum so optimistic about that?

Roblox stock is expected to report Q4 earnings sometime towards the end of February. In that report, Crum predicts Roblox will announce 16% year over year growth in bookings, a 30% increase in hours of "engagement" by Roblox users on the platform, and a 32% increase in daily active users. In a curious twist for a company whose games have historically been most popular with young users, Crum thinks that user growth among older Roblox players — age 13 and up — will actually outpace overall user growth, rising 48% year over year. And given that older players can generally be expected to possess more disposable income than kids, that should be a good long-term trend for Roblox.

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In terms of dollars and cents, Crum believes that Roblox will report that it ended fiscal 2021 with $2.7 billion in bookings. The analyst forecasts 20% bookings growth in each of 2022 and 2023, as bookings growth to $3.3 billion and then $3.9 billion respectively. Crum does not, however, provide any estimates for Roblox's actual GAAP revenue.

Gross profit margins are expected to be high at 75.6% in 2021, and to keep inching higher — 75.9% in 2022 and 76% in 2023. Crum does not, however, see Roblox posting actual GAAP net profits at any time in the next three years.

On the plus side, he does believe Roblox will continue to generate healthy free cash flow: $434 million in positive free cash flow for 2021, $516 million in 2022, and $764 million in 2023. If he's right about that, he says this will result in free cash flow margins (free cash flow divided by bookings) of roughly 16% or 17% in all three years — good enough numbers to justify buying Roblox stock, in Crum's opinion.

Wall Street is clearly interested in RBLX, as shown by the 10 analyst reviews the stock has picked up in recent months. These break down to 8 Buys, 1 Hold and 1 Sell for a Moderate Buy consensus, and have an average price target of $112 and change, suggesting an upside of ~72% from the current share price of $65.2. (See RBLX stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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