Welcome to the Stock of the Day.
The latest quarterly numbers have been announced from Netflix (NFLX) and shares were sent soaring in after-market trading. The stock has had a buy rating by my Portfolio Grader rating service for some time now. Will this report change that? Find out now.
Since 1997, Netflix Inc. has been a leading provider of on-demand internet streaming and DVD-by-mail services. Over the past few years, the company has worked double-time to increase its subscriber base, launching in Canada (2010), Latin America and the Caribbean (2011), the United Kingdom, Ireland and Scandinavia (2012), and most recently, the Netherlands (2013). And the company has had great success with its new crop of original programming, and collaborating with cable television companies to become a fixture on television screens as well as computer screens.
To put is simply, Netflix crushed earnings. The headline number was that the company added 2.3 million U.S. customers and domestic growth is what analyst and investors were looking for—sending shares 17% higher.
Earnings came in at $48 million for the quarter, or 79 cents per share, compared with $8 million, or just 13 cents a year ago. Expectations were for 65 cents per share and that represents a 21% surprise. Revenues were up 24% coming in at $1.17 billion and also beating estimates.
Netflix is a unique company—there isn’t another company that is quite like it. But there are plenty of other players that eat into this company’s market share, including Amazon (AMZN), which offers video streaming services at a pay-per-view basis.
But when you go to plug the two competitors into Portfolio Grader, you see that Netflix is still top dog with institutional investors and in terms of fundamental growth, so it outranks AMZN overall. As I’ll discuss shortly, Netflix pulls off top marks in nearly every single fundamental metric I graded it on.
Meanwhile Amazon is an entirely different story. Therefore, AMZN is a hold at best given it’s current growth path.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. As I just mentioned, NFLX is currently enjoying stronger institutional buying pressure than the competition. This is important because it indicates stronger profit potential for shareholders.
Meanwhile, 2013 has proven to be a pivotal year for Netflix as it has turned around several of its fundamental metrics. Netflix currently receives strong ratings for operating margin growth, earnings growth, earnings momentum, analyst earnings revisions, and cash flow (all A-rated) and solid marks for sales growth and its track record of earnings surprises (both B-rated).
The one area that NFLX could stand to firm up is return on equity (D-rated), but the company still receives a A-rating for its Fundamental Grade.
Bottom Line: As of this posting I consider NFLX an B-rated Buy. There is a lot of excitement around this company and investors are willing to reward shares for positive earnings results.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!