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Tue, June 6 at 7:00PM ET

Don’t Chase Netflix Stock Into Another Dip (NFLX)

Just last week, investors were getting downright grim on the prospects for Netflix (NFLX). After all, there was lots of buzz that Time-Warner (TWX) was gearing up to invest in rival Hulu. As a result, Netflix stock plunged 8% in just five days.

nflx netflix stockBut as for this week, it’s as if nothing happened. Netflix stock is already up a sizzling 12% since Friday’s close.

So, what’s going on here? Let’s take a look at the catalysts for the recent bull move and see if there’s any more momentum to be found.

First of all, Netflix stock got a boost yesterday largely due to the news that the company’s online video service now counts a hefty 2.5 million users in Australia, according to the Australian Communications and Media Authority (ACMA). Keep in mind that NFLX entered the market only back in March of this year. So, yes, there appears to be lots of momentum.

Granted, the ACMA did not report the number of paid subscribers. But it’s encouraging that there appears to be strong interest in the NFLX service, which should ultimately lead to monetization.

Then again, the company is in the midst of an aggressive push into foreign markets. In the latest quarter, NFLX boosted its customer base by 2.74 million in global venues, which beat the Street forecast of 2.45 million.

And the long-term growth potential for online video remains enormous, with a recent report from Ericsson (ERIC) serving as a great reminder. The firm projects a 10x spike in mobile data traffic over the next six years, 70% of which will be attributable to video usage. So, yes, NFLX is likely to be a big beneficiary.

Now Is Not the Time to Chase Netflix Stock

But Netflix stock comes with some gut-wrenching volatility, which means current and prospective investors should proceed with caution. As last week’s swoon proved, even potential moves from rivals can wreak havoc on NFLX stock.

Oh, and it’s a good bet there will be lots of interesting rumors and announcements bubbling up during the coming months. The fact is that legacy media and cable operators surely want to blunt the momentum of NFLX and get a piece of the online video streaming pie.

Netflix already faces plenty of competition from Internet juggernauts, such as Amazon (AMZN), Google’s (GOOG, GOOGL) YouTube and Facebook (FB). And, in addition to TWX, there are other biggies like Comcast (CMCSA), 21st Century Fox (FOXA), CBS (CBS) and Sony (SNE) gunning for the market. There’s even chatter that Apple (AAPL) will make a play, too.

Actually, there are already signs that the competition is taking a toll. As seen in the latest earnings report from NFLX, the company reported disappointing user numbers in the U.S. market.

Given all this, there is certainly lots of opportunity for negative headlines to knock down Netflix stock. So, if you are looking to jump on board, you’re better off waiting for a future dip, allowing you to enter NFLX at a more attractive price

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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