Competition and resistance are everywhere when it comes to a stock like Netflix (NASDAQ:NFLX). But if investors subscribe to the idea challenges off and on the price chart are meant to be overcome, now is a very good time to go long Netflix stock. Let me explain.
There are so many things that could go wrong with Netflix stock and its bullish fan base. Off the price chart, there’s NFLX’s glaringly rich price-to-earnings ratio, which fetches a multiple of 139 on a trailing basis and a still stiff forward price of 58 times earnings.
Still, continued strong double-digit revenue and subscriber growth make more than a good argument why NFLX investors maintain their support. And forecasts, such as Netflix doubling its subscriber base over the next decade, keep the company’s momentum narrative intact and the pricey multiple concerns at bay.
But what about Netflix’s storied cash burn and those competitive threats Netflix stock faces?
Those are challenges that do appear to be growing every day. Currently, Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) are set to enter the streaming video on demand or SVOD market in 2019 with new platforms of their own. Once again though, and as InvestorPlace contributor Rohit Chhatwal notes, those dangers are likely more superficial than real for a myriad of reasons.
And what about the resistance and challenges NFLX stock has to contend with on the price chart? Here too, the story is unfolding as a very strong narrative for Netflix bulls.
Netflix Stock Daily Chart
Click to Enlarge
Following a steep correction late last year and then a quick and roughly equally sized rally, it was difficult to subscribe to being a fan of NFLX stock in the short-term. Along with streaming device maker Roku (NASDAQ:ROKU), I wrote as much back in the first half of January.
Despite the fact that shares now roughly 10% higher, it was a good observation. In the face of my cautious point of view, NFLX experienced early gains, but it wasn’t without even more difficult-to-handle, gut-wrenching volatility as bulls and bears dueled around the 200-day simple moving average.
In the here and now though, conditions are looking definitely up for Netflix stock bulls.
Following Netflix’s bears ceding control and shares trading laterally over several weeks, backed by the 200SMA and 62% retracement level, Wednesday’s session witnessed a market-bucking breakout on heavier and above-average subscriber rates from investors.
It’s very bullish.
That’s not to say there’s no chance for a scary sequel to emerge on the NFLX stock chart. As I’ve been known to say, there are no guarantees on Wall Street except the opening and closing bells.
But with the breakout in Netflix well-supported by a friendly looking stochastic set-up, shares have the technical wherewithal to reclaim their prior all-time-high of $423.21 established last summer. That’s about $50 or 13% higher and where an initial price target for profit-taking makes sense.
For investors that believe in the inevitability of that bullish challenge, buying Netflix stock today could make sense. But rather than maintaining a “buy and hope” strategy, I’d recommend a blended and practical stop of 5%. This exit allows investors to contain exposure to a manageable amount relative to the potential upside reward. It also lays slightly beneath Netflix’s three-day low and at this point in time, not a price level on the NFLX stock chart that needs to be revisited.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
