(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 given up all of its post-earnings gains, falling by nearly 9.5% since reaching almost $339 a share on April 17. But, even with the recent sell-off in the streaming media company, shares are still higher by nearly 59% on the year. Analysts, options traders and a technical analysis of the chart all suggest that shares of Netflix will rebound in the coming weeks by about 11%, back around its old highs.
Shares of Netflix broke out in the days before the earnings release on April 16. An article on Investopedia on April 13 noted that breakout, and that the stock was likely to rise to a new all-time high following that result. But as the stock gives up much of its gains, the chart and trends are still bullish overall. (See also: Netflix’s Breakout May Boost Stock to Record Highs.)
The Technical Take
The 15-minutes intraday chart shows how shares of Netflix broke out rising above a significant downtrend days before the earnings release. The strong quarterly results sent shares of Netflix surging higher by nearly 10%. But since then, shares of Netflix have been fallen hard and are in the process of refilling the gap created following results and retesting the breakout before results. But the gap has been filled—and the breakout retested—around $300. Shares of Netflix may resume the uptrend that has been in place since the start of 2018, back to its highs around $339, a jump of approximately 11% from its current price around $305.
A Look at the Options
The options set to expire on June 15 are also indicating the stock of may continue to rise with a great deal of open interest up at the $330 strike price. At that strike price, there are nearly 17,000 open call contracts, with a dollar value of about $14.5 million. The level of open interest has been steadily increasing since April 17, rising from just 4,300 open contracts. The options cost about $8 per contract and carry a breakeven price of about $338 per share.
Analyst's Raise Price Targets
Analysts have also been raising their price targets on the stock with the average price target now at roughly $330, having risen from just $297 on April 13, a jump of 11%. Earnings estimates for the second quarter have also been increasing and are up by nearly 28% since April 1 to $0.81 per share from $0.63, which represents a fivefold jump from 2017 second-quarter results of only $0.16.
NFLX Price Target data by YCharts
But there are plenty of investors and analysts who see risks to Netflix's pricey valuation as the company continues to spend billions in new content every year to keep growing its subscriber base.
The bull and bear battle will continue to rage, but for now, the trend continues to be in favor of the bulls.
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.