Last week, we pounded on Dean Foods Company (NYSE: DF), citing its lousy record of post-earnings price action. We hope you hopped aboard a put on DF, as the stock cratered after earnings, plunging 28% in just one day.
OK, we didn’t expect that big a move. Who could? But we nailed the direction, and if you jumped on it with a May put, you probably collected at least a double and maybe even a triple on that trade.
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This week, we’re going to look at the bright side with a stock that the Street sees in a different light. It’s Netflix (NASDAQ: NFLX), the online and mail movie rental company that has blown most of the competition away (in fact, Hollywood just announced that they’re liquidating).
NFLX recently reported Q1 earnings that beat the consensus estimate by 9%. Profits were up 59% from a year ago, while revenues increased by a robust 25%. The number of subscribers jumped 35% over the same quarter last year.
On the charts, NFLX is up a whopping 90% so far this year. Sure, the stock sold off with the market last week, but it held onto its 20-day moving average while most stocks were searching for their 50-day or 100-day trendlines.
Now the shares are rebounding off this support, looking to take out the all-time high around $110 reached last month.
So what’s not to like? Well, apparently a lot, if you believe the sentiment indicators.
The put/call ratio has been on the rise for the past month, suggesting that options players are trying to call a top. Short interest accounts for nearly a third of the float, which leaves the stock vulnerable to a short squeeze. And just eight of 29 analysts rate the stock a “buy,” while an almost unheard of six rate NFLX a “strong sell.”
Are they looking at the same chart and profit numbers we are?
NFLX is a great example of a huge performer that no one believes in. That means there’s a lot of reserve buying power waiting to be unleashed. Look at a June NFLX call to allow time for the stock to take out its all-time highs.
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