Netflix, Inc. (NFLX) Stock Is a China-Powered Buy at Fresh Highs

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Netflix - Netflix, Inc. (NFLX) Stock Is a China-Powered Buy at Fresh Highs

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China is a tough nut to crack for U.S. technology companies. Due to strict content restrictions, companies like Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Netflix, Inc. (NASDAQ:NFLX) have all been left out. However, NFLX stock is rallying Tuesday on news that the company has found a way in.

Netflix, Inc. just got its foot in China's door

China boasts a population close to 1.4 billion people. In a technologically driven consumption economy, this is equivalent to a gold mine for some companies.

Luckily for Netflix, it could be as well. That’s why when I read the news this morning, I was shocked that NFLX stock was only up about 1%.

That’s no longer the case, of course. Netflix shares have rocketed higher by more than 6% in Tuesday’s midday trading. Shares have also hit new all-time highs of $152.57 (and counting).

Better still: More gains could be on the way.

First Though, What’s Up With This Netflix Deal?

Before we get to the stock price, let’s take a closer look at this deal.

Netflix didn’t just gain entry into China overnight. There’s no way that would happen — the regulatory hurdles are too high. But by partnering with a Chinese company in the form of a licensing deal, Netflix has gotten its foot in the door.

Netflix has teamed up with iQIYI, a streaming platform owned by Baidu Inc (ADR) (NASDAQ:BIDU). For its part, BIDU stock is up about 4% on the news. And just because iQIYI may not be a platform we’re all that familiar with, don’t underestimate its size. It currently boasts about 500 million monthly active users.

It’s too early to speculate what content will be available or when the deal will go into effect. But it’s reported that Netflix original content will be a part of it.

Tuesday’s Move in NFLX Stock

Some investors might be shrugging at this news — some certainly did this morning. But I don’t think the stock is overreacting here. The financial implications may not be felt immediately or immensely. But make no mistake, gaining access to a country that’s more than four times the size of the U.S. population is a big deal.

A few weeks ago, we previewed NFLX stock ahead of earnings. Given its 45% rise in just six months leading up to the report, we deemed it too risky to initiate a new long position. Even though we expected great results, new buyers didn’t have a good risk/reward setup.

But I believe that has changed. While I’m always in the camp of buying into pullbacks rather than breakouts, Netflix has an interesting setup.

NFLX, NFLX Stock, Netflix, Netflix Stock

Source: Stockcharts.com

Take a look at the chart. In our previous post, we had pointed out that $147.50 had been resistance for NFLX stock. However, Tuesday’s move has blasted the stock through that level. Hopefully, $147.50 will now act as support should Netflix pullback.

There are other positive indicators as well. Up top, the purple circle on the RSI measurement indicates NFLX is not yet overbought. Down below, the teal circle on the MACD shows that Tuesday’s move now gives Netflix positive momentum. These are both bullish indicators.

Traders can do one of two things:

  • Buy now, use $147.50 as their stop-loss and look for more upside.
  • Wait for a pullback to $147.50 to buy Netflix stock at support, should it hold.

Bret Kenwell is the manager and author of Future Blue Chips. He can be contacted on Twitter via @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/netflix-inc-nflx-stock-is-a-buy-even-at-fresh-all-time-highs/.

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