Sign InNetflix Stock Analysis: Mixed Bag for Investors as Price Nears Overvaluation and Overbought Territory
Summary
As of July 18, 2023, Netflix's stock is experiencing a significant increase in its share price but might be overvalued based on its P/E ratio and its RSI suggests that it is in overbought territory, however, the moving averages indicate a strong upward trend, leading to the conclusion that it should be categorized as a 'Hold' for now, with investors observing the company's upcoming earnings report and transition to an ad-supported plan.
Fundamental Analysis
Netflix Inc. (Ticker: NFLX) closed at $474.80 as of July 18, 2023. It has recently experienced a significant uptick in its share price, with an increase of $24.75 (5.50%) from the previous trading session. It posted earnings per share (EPS) of $9.10. The share performance gives Netflix a P/E ratio of 52.48, which suggests a hefty premium is being paid for the expected growth of the company. Given the industry average, the current P/E ratio could suggest an overvaluation.
Volatility in trading was evidenced by the recent highs and lows; $478.15 and $448.78 respectively, while the year to date, the highs and lows stand at $485 and $200.10. The market capitalization of the company stands at $212.31 billion, which indicates the total dollar value of all outstanding shares of the firm. Netflix has about 444.54 million shares outstanding with a daily trading volume of 16.68 million shares which significantly surpasses its average volume of 6.59 million shares.
Technical Analysis
Netflix's relative strength index (RSI), standing at 80, suggests that the stock is currently in overbought territory, which could indicate an imminent price decline. Observing the moving averages, the company's 50-day moving average is $402.41, while the 200-day moving average stands at $332.04, indicating a robust upward trend in stock price.
The MACD (3-month) stands at 7.73, indicating bullish momentum.
The discounted cash flow (DCF) analysis values Netflix at approximately $488.99 per share, which illustrates that the stock holds potential and might be undervalued at the current market price of $474.
Recent News and Upcoming Events
Netflix has recently scrapped its basic ad-free plan to shift its focus to an ad-supported plan. While this move might ruffle some feathers among its clientele, Netflix hopes to attract more subscribers to its ad-supported tier. This development can potentially increase revenue and might stimulate the stock price.
With the earnings announcement slated for July 19, 2023, there is speculation of a positive quarter for the firm despite recent controversies.
Price Targets
The stock has a target high of $735, a target low of $151, and a consensus target of $326.44 with a median target of $305, suggesting a wide range in expectations for this stock.
Conclusion
Considering the fundamental data, technical indicators, news factors, and predicted targets, Netflix's stock represents a mixed bag. It seems to be overvalued based on the current P/E ratio, and the RSI also suggests the stock is overbought. However, the moving averages suggest a strong uptrend, which could potentially prolong.
Based on this analysis, Netflix stock should be categorized as a 'Hold' for now. Traders and investors need to observe how the recent strategic decisions of the company translate into financial performance in the upcoming earnings report. Moreover, as an investor, it would be prudent to pay attention to the company's activities surrounding the transition to an ad-supported plan before making an informed decision.
