Netflix has been benefiting from the stay-at-home entertainment boom spurred by the Covid-19 pandemic. Its excellent performance has landed it a spot on IBD Leaderboard.
Netflix Stock Analysis
Shares fell Thursday after soaring nearly 12% Wednesday. Netflix stock has bounced off its 50-day moving average and is forming the right side of a new cup base. It is shooting for a buy point of 575.47.
One factor in its favor is the new base will be second stage. IBD research has found such early stage bases have a higher chance of success. While it has support at the 10-week line, much of the pattern has formed in the lower part of the base.
The relative strength line is offering reasons for optimism, as it is trending upward after some weeks of downward action. The stock is up more than 60% so far in 2020, and is up more than 80% from its coronavirus crash lows.
Netlfix stock has a best-possible IBD Composite Rating of 99. This puts it in the top 1% of stocks tracked. In addition, the stock’s earnings growth is even better than its stock performance.
The IBD Stock Checkup tool shows the firm is growing at a rapid rate. Over the past three quarters Netflix earnings have grown by an average of 201%. They also accelerated in the last quarter. This is well above CAN SLIM requirements for 25% growth.
Another key consideration for CAN SLIM investors is the I, which stands for institutional sponsorship. Here Netflix stock scores solidly, with an Accumulation/Distribution Rating of B-. This reflects moderate institutional buying over the past 13 weeks.
Netflix Looks To Grow Subscriber Base
For the current quarter, Netflix is expecting to add 2.5 million subscribers. However this was well short of Wall Street expectations for 5.8 million new subscribers in the September quarter. Netflix said it likely pulled potential subscribers from the second half of the year into the first half.
The company forecast earnings of $2.09 a share on sales of $6.33 billion. Analysts were modeling Netflix earnings of $2 a share on sales of $6.39 billion in the third quarter. In the year-earlier period, Netflix earnings were $1.47 a share on sales of $5.24 billion.
Analyst Skeptical Of Price Hikes
Loup Ventures managing partner Gene Munster said soft guidance “should not be a surprise” given Netflix’s performance so far in 2020. He said that while growth is slowing, “for the year the company is on target to outperform the Street’s original paid subs add expectations by 40%.” However he cast doubt on management’s plans to raise prices.
“On the June Quarter Earnings Interview, the company left the door open for price increases next year on a region by region basis,” he said in a July 16 research note. “That said, we believe it will become progressively more difficult for Netflix to raise prices. This is because other fast-growing forms of entertainment are even cheaper.”
It faces competition from other streamers such as Walt Disney’s (DIS) Disney+, Amazon.com‘s (AMZN) Prime service and Comcast’s (CMCSA) Peacock. Munster also sees computer games such as Fortnite vying for consumer attention.
See the current IBD 50 to find out which leading growth stocks are on the list right now. You can also check the latest IBD Stock Lists Update to track which stocks just came on and off the IBD 50 and other screens.
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