Netflix, Inc. Stock Surges to All-Time Highs — Now What?

Netflix stock - Netflix, Inc. Stock Surges to All-Time Highs — Now What?

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On March 5, shares of Netflix, Inc. (NASDAQ:NFLX) surged 4.63% to $315 on the dot, closing at new all-time highs. The move was impressive — and yet, not surprising — for anyone who’s been following Netflix stock in 2018. On March 6, the trend continued — NFLX is up to $325 as of this writing.

Shares are now up a ridiculous 69% so far this year. What do we do now?

The rally in Netflix has been breathtaking. This isn’t a $10 billion company going to a $16 billion market cap. Instead, NFLX stock has gone from an ~$80 billion market cap to a whopping $141 billion market cap. The fact that NFLX stock price has done this all while the broader markets have been volatile is even more impressive.

However, as its market cap continues to race higher, we’re looking at a company that’s now encroaching on Walt Disney Co (NYSE:DIS). DIS sports a market cap of $157.5 billion, just $16.5 billion larger than Netflix at the moment. The sheer size of this move is what impresses me most. Consider that at the start of 2018 — just nine weeks ago — DIS was about twice the size of Netflix.

At this rate, NFLX will have a higher market cap than DIS by Easter.

Trading Netflix Stock

So what do we do with NFLX stock price? Shares continue to surge higher and there is seemingly no end in sight. I admit, I missed this one on the long side. Even if I had caught it though, it’s unlikely it’d watch it rally 66% in 60-something days without taking profit.

So what do the charts say?

Netflix stock was trading in a pretty tight channel, shown on the chart with black and blue lines.

chart of Netflix stock price
Click to Enlarge
Source: Chart courtesy of

It seems too late to buy now. More upside likely exists in the short-term, but the risk/reward is not attractive. Three green arrows can be seen, which highlight when Netflix stock had a high Relative Strength Index (RSI). The RSI measures how overbought or oversold a stock is. As you can see near the top of the chart (with the green horizontal line), NFLX stock has seen its RSI near these levels before. Every time that was the case, the stock pulled back.

There is one note to consider with this. The stock is overbought, but not to the levels that typically signal a pullback is coming. Meaning that, more upside to $320, $325 or possibly higher still exists. Beyond that, I would look for a pullback to the blue trend line that was former resistance. Should that fail, look for support at $250.

Bottom Line on NFLX Stock

There’s no doubt Netflix is changing the game when it comes to media consumption. The stock deserves some type of premium for this disruption. However, I find it hard to believe that enough has changed over the last nine weeks to warrant a 66% increase in its valuation.

Admittedly, the company’s most recent quarter shows that analyst estimates for quarterly sign-ups (both domestic and abroad) are likely too low. It also shows that the recent price hike for domestic subscribers did not cause any backlash. But its free-cash flow deficit and high valuation (discussed in the story comparing NFLX stock price to Disney) make me wonder how much upside could exist.

In a nutshell, Netflix is a great company but a questionable stock at this point. The chasing is not coming from its beaming fundamentals, but rather a technical, “animal-spirits” basis. I don’t want to get caught up in that this late in the game.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a position in DIS. 

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