If you subscribe to what other Netflix, Inc. (NASDAQ:NFLX) bulls are saying, NFLX stock is a buy. But with earnings on deck, using a short-term, bullishly positioned butterfly spread in lieu of long stock is the favored play. Let me explain.
Netflix earnings are scheduled to be released after the close Monday night with bulls maintaining squatter’s rights in front of the report.
Wall Street expects the streaming video on demand, or SVOD, giant to deliver strong earnings growth generating profits of 32 cents for the third quarter. That’s up 167% from 2016’s same quarter 12-cent result.
The whisper number for NFLX earnings is even more bullish. Consensus views are pegging profits of 34 cents and two cents above official estimates. At the same time, Netflix’s revenue growth is forecasted to improve on the company’s impressive history with analysts looking for an increase of 30% on sales of $2.97 billion.
Behind the headline revenue number, investors will be looking for Netflix to add 750,000 subscribers based on company guidance. Wall Street has been driving shares higher of late in part on the belief NFLX stock will actually beat views.
On Friday, J.P. Morgan added its own two cents or more aptly, $15, in raising its price target from $210 to $225 and stating it expects 800,000 in subscriber additions.
NFLX Stock Daily Chart
Click to Enlarge NFLX stock remains one of the more contentious large capitalization names with its share of bears as evidenced by its current and fairly high short interest of 7.61%. But as the provided weekly chart of shows, that’s been a tough position to maintain.
Over the past 12 months since initially breaking out above pivot resistance within a two-year cup-shaped base, shares of Netflix have moved into a firm and steady uptrend that’s tacked on 97% for bullish investors fully-subscribed to the NFLX stock narrative.
In the here and now and shares less than 5% above a third weekly base breakout pivot from a cup base, a long delta position looks reasonable, but be advised, would-be investors aren’t early in entering into NFLX’s price trend at this point in time.
Supporting our cautious view is a combination of NFLX stock’s strong gains of the past year and profit-taking psychology surrounding whole numbers such as the current situation at $200. As well, while third stage bases can provide strong returns, deeper corrective patterns that test the mettle of bullish investors are often right around the corner.