(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NFLX.)
Netflix Inc. (NFLX) shares have pulled back by as much as 15% in recent weeks, after more than doubling over the past year. But now as the company heads into the first quarter results on Monday, analysts have been aggressively raising their price targets on the stock. Meanwhile, a technical analysis of the stock's charts shows shares have recently broken out and could be on their way to record highs.
Analysts are looking for the company to report that revenue during the first quarter grew by nearly 40% since last year to $3.69 billion, while earnings are expected to climb by almost 57% to $0.63 per share. But perhaps more important than that will be the subscriber growth numbers that investors so heavily focus. Netflix has guided for total net new subscribers of 6.35 million, upping the total global member to 123.93 million.
Netflix shares have broken out of a downtrend that has been in place since shares hit a record high intraday on March 9 around $331. But since falling and retesting support levels at $273, shares of Netflix have rebounded sharply, and with the stock now breaking out, rising above the downtrend, it may result in shares rising only modestly back to resistance around $324, a jump of just 3.5% from its current price around $313. However, should share rise above that resistance level, the stock will climb even higher and above the previous highs of $331.
Analysts Getting Bullish
Analysts have been aggressively upping their price targets on Netflix over the past few days as some see better-than-expected subscriber growth, while others see better revenue and opportunities for further price increases. Goldman Sachs, recently upped its price target for Netflix to $360 from $315, while Deutsche Bank and Morgan Stanley raised their price targets to $350 from $240 and $275, respectively.
Massive Levels of Volatility
Options traders are looking for massive amounts of volatility following Netflix's results Monday. The long straddle options strategy set to expire April 20 is implying shares will rise or fall by over 10% from the $315 strike price. It means that Netflix shares could be trading in a range anywhere between $283 and $347 after the company reports results. The implied volatility, according to Trade Alert, for the options is around 90% an incredibly high level and over five times more volatile than the S&P 500's implied volatility of 16%.
One thing seems clear for Netflix going into results Monday after the close of trading: Expectations are big, and the volatility to follow may be massive.
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.