Is the Incredible Run for Netflix Over?

by Aaron Levitt | October 9, 2013 11:00 am

In late 2011 and 2012, Netflix (NFLX[1]) faced some dark days. The company’s stock price was floundering, and there were many questions about NFLX’s expansion strategy and content costs.

Lately, however, NFLX has been on an absolute tear and is now easily profitable as well. In fact, the company is currently expected to earn $1.52 per share for the current year, a growth rate of over 420% when compared to the year ago period.  Plus, NFLX has seen its share price surge by over 250% in the first nine months of the year, making it a star performer as well.

Yet despite this incredible run, some cracks are starting to appear in the NFLX story. The current forward PE is above 200, while the stock has just a Zacks Rank #3 (hold), and its Zacks Recommendation was recently downgraded to ‘neutral’. Netflix has also lost about $30 off its share price in the last five days, including a 5% slump in Tuesday trading alone.

This recent tumble could suggest that the last new high in NFLX was the top for quite some time, and that some more poor trading could be ahead for the company. After all, we have been here before with Netflix, as the company saw a huge surge in early 2011, only to slump more than 70% in the final half of 2011. Could history be ready to repeat itself here?

But thanks to soaring revenues and a healthy expansion plan in international markets, NFLX could still have room to run.  This could be especially true if the current slate of original content—which includes the fantastic program and Emmy-winner House of Cards—convinces continues to convince cable TV-weary consumers that Netflix is an amazing deal at $8 per month for unlimited streaming (or one-DVD-at-a-time for the same price).

But what do you think of Netflix?

Is the recent sell-off overdone (or maybe even just D.C.-inspired selling of high beta names)? Or can Netflix recoup its losses and power to fresh highs to close out 2013?

Let us know!

NETFLIX INC (NFLX): Free Stock Analysis Report[2]

Zacks Investment Research[3]

  1. NFLX:
  2. NETFLIX INC (NFLX): Free Stock Analysis Report:
  3. Zacks Investment Research:

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