Sign InNetflix (NFLX) Analysis: Strong Performance and High Expectations, Hold Recommendation
Summary
As of the analysis on an unspecified date, Netflix's stock price has reached a year high, indicating investor confidence and successful operations, with a strong market cap; however, technical analysis suggests a potential price correction, and uncertainty regarding future subscriber growth and missed revenue expectations warrants a Hold recommendation for potential investors.
Fundamental Analysis
Netflix, Inc. (NFLX) showed strong performance over the past year, with its share price reaching a year high of $485 USD. Its last closing price was $477.59. High share prices typically indicate investor confidence and successful operations, and Netflix’s increased price confirms this. The entertainment company commands a considerable market cap of $212.31 billion, demonstrating its dominant position in the industry.
Netflix reported earnings per share (EPS) of $9.1, which is potent given that the EPS reflects the company’s profitability. A higher EPS generally indicates more value because investors will pay more for a company's shares if they think the company has higher profits relative to its share price. However, its price-to-earnings (PE) ratio is relatively high at 52.48, implying the stock is slightly overvalued. The high P/E suggests that investors expect high earnings growth in the future compared to companies with a lower P/E.
Recent news reports indicate that Netflix’s 2Q subscriber growth surged, a sign that their recent crackdown on password sharing and the rollout of a cheaper version of their video streaming service is paying off. However, their move to axe the cheapest ad-free service for new customers may dampen future subscriber growth.
Technical Analysis
The Relative Strength Index (RSI14) is at 78, typically considered overbought, suggesting that a price correction could be imminent. When the RSI is over 70, it could signify that the stock is overbought and that a reversal may occur soon.
Netflix’s stock is trading above both its 50-day ($402.41) and 200-day ($332.04) moving averages, which generally suggests a bullish trend. The 3-month Moving Average Convergence Divergence (MACD) of 7.93 also suggests upward momentum.
However, the stock showed a large average volume increase, with a volume of 16.68 million shares compared to an average volume of 6.59 million. This high volume indicates that there is substantial interest in the stock.
Outlook and Recommendation
The projected low target price is $151, and the high target price is $735, with a median of $305. Given these projections and the current price of $477.59, it suggests that the stock could both rise or fall significantly.
Recent news, mostly about the recent earnings, show the company’s revenue missed expectations despite an increase in subscribers. Bad news for the company like this could hurt its share performance.
Considering both the fundamental and technical analysis, and the current uncertainties in the market, a 'Hold' recommendation is appropriate for Netflix, Inc. (NFLX). Potential investors should carefully monitor the situation and pay attention to both industry and company-specific news.
