(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NFLX.)
Netflix Inc.'s (NFLX) stock has fallen by 17% since reporting disappointing second-quarter results. But an analysis of its technical chart is now suggesting shares may rebound by roughly 11% from its current price of approximately $348.
The streaming media company reported earnings that topped analysts’ estimates by more than 7% for the second quarter, while revenue came in line. But the company fell short on the number of new subscribers it added, while the revenue guidance for the coming quarter was weaker than expected, causing shares to fall sharply. (For more, see also: Netflix Breakout Seen Boosting Stock by 17%.)
Now shares of the stock are breaking out, with the price rising above a downtrend that has been in place since peaking around $420 in the middle of July. That means shares could increase back to a technical resistance level around $396 from their current price, a jump of more than 11%. Should the stock rise to that price, it would also refill a gap created when the stock fell sharply after the second-quarter results when it plunged to as low as $344.
Another positive indication is the relative strength index (RSI), which has fallen to 30, indicating the stock has become oversold. The last time the stock hit such oversold levels as measured by the RSI was in June of 2016 when it also hit 30. Volume levels have been steadily falling too, and that may indicate that selling pressure is beginning to fade. (For more, see also: Netflix Market Cap Surges Past $110 Billion.)
Despite the significant pullback, the outlook for the company still looks healthy for the balance of the year, with earnings seen more than doubling, and revenue seen rising by nearly 36%. The outlook for 2019 and 2020 also look strong, with analysts forecasting earnings to grow by more than 60% in 2019 and 50% in 2020. Meanwhile, revenue is expected to rise by more than 24% in 2019 and 21% in 2020.
Based on the technical chart it would seem shares are gearing up for a rebound, and while the skeptics may remain, the outlook for future growth still looks very strong.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.