Netflix Set to Report Third Quarter Earnings Results
The new normal in terms of the economy has helped some companies. As more and more people work from home and stay home rather than going out, certain companies have seen the demand for their services grow. Netflix (NFLX) is one of the companies that seems to be benefitting.
The company is set to report third quarter earnings results on October 20 and it is expected to show earnings growth of 44.9% over the third quarter of last year. Earnings are also expected to jump by 33% over the second quarter.
Netflix has seen earnings grow by 82% per year over the last three years while revenue has grown by 30% per year. Second quarter results showed EPS growth of 165% over the previous year and revenue was up 25%. The company’s return on equity is well above average at 29.1% while the profit margin is slightly below average at 10.2%.
Looking at the Tickeron Scorecard for Netflix we see that the stock is rated as a “strong buy”. The company scores positive results in three fundamental categories and it receives one negative result—the Valuation Rating. The stock is currently trading with a trailing P/E of 91 and a forward P/E of 62. The three positive results are in the Profit vs. Risk rating, the SMR rating, and the Price Growth rating.
We also see that the stock has four bullish signals and two bearish signals from the technical indicators. The bullish signals are from the AROON indicator, MACD, Momentum, and the Moving Averages. Three of the signals came 10 days ago and one was 22 days ago. The two bearish signals are from the RSI and Bollinger Bands. The bearish signal from the RSI was generated 22 days ago while the signal from the Bollinger Bands came nine days ago.
The weekly chart shows an upwardly sloped trend line that connects the lows from the past year, with the exception of the extreme low in March. I have seen this pattern with a number of stocks and I attribute it to the meltdown in February and March being a black swan event. Investors sold everything without really considering which companies could potentially benefit from the economic lockdowns that were being implemented. Investors panicked.
We see that the stock dropped for the first two and a half months of the third quarter before turning higher over the last four weeks. The pullback allowed the 10-week RSI and the weekly stochastic readings to move out of overbought territory. The RSI dropped down to the 50 area and the stochastic indicators fell below the 50 level. The indicators hadn’t been that low since last November.
Something that is unique to Netflix is how its report is analyzed. For most companies investors focus on three things— earnings, revenue, and the outlook. For Netflix there is a fourth element that is always watched closely and that is the subscriber growth.
In the first half of 2020, Netflix added 25.9 million subscribers which is approximately the same number of subscribers that were added in the entire year of 2019. As part of the second quarter report, management put a damper on investor expectations by saying it only expected 2.5 million in subscriber growth for the third quarter. Despite the outlook from management, two different analysts have made statements that run counter to the downbeat forecast from management. An analyst from KeyBanc Capital raised his price target on October 15 and he cited subscriber growth as one of the reasons. An analyst with Goldman Sachs raised his price target on October 14 and the raised target also cited subscriber growth as one of the reasons.
Seeing these kinds of actions ahead of an earnings report might seem like good news, but it could also be a sign that expectations are running high. Investors should consider the expectations as a hurdle—the higher they are, the harder it is to clear.
NFLX in +11.25% Uptrend, advancing for three consecutive days on May 18, 2023
Moving higher for three straight days is viewed as a bullish sign. Keep an eye on this stock for future growth. Considering data from situations where NFLX advanced for three days, in of 300 cases, the price rose further within the following month. The odds of a continued upward trend are .
Technical Analysis (Indicators)
Bullish Trend Analysis
The Momentum Indicator moved above the 0 level on May 08, 2023. You may want to consider a long position or call options on NFLX as a result. In of 87 past instances where the momentum indicator moved above 0, the stock continued to climb. The odds of a continued upward trend are .
The Moving Average Convergence Divergence (MACD) for NFLX just turned positive on May 09, 2023. Looking at past instances where NFLX's MACD turned positive, the stock continued to rise in of 48 cases over the following month. The odds of a continued upward trend are .
NFLX moved above its 50-day moving average on May 05, 2023 date and that indicates a change from a downward trend to an upward trend.
Bearish Trend Analysis
The RSI Indicator demonstrated that the stock has entered the overbought zone. This may point to a price pull-back soon.
The Stochastic Oscillator entered the overbought zone. Expect a price pull-back in the foreseeable future.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where NFLX declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
NFLX broke above its upper Bollinger Band on May 18, 2023. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
The Aroon Indicator for NFLX entered a downward trend on May 11, 2023. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
Fundamental Analysis (Ratings)
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating outstanding price growth. NFLX’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to outstanding earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Seasonality Score of (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating that the returns do not compensate for the risks. NFLX’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 89, placing this stock better than average.
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is significantly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (7.716) is normal, around the industry mean (4.253). P/E Ratio (40.816) is within average values for comparable stocks, (72.197). Projected Growth (PEG Ratio) (1.877) is also within normal values, averaging (2.646). NFLX has a moderately low Dividend Yield (0.000) as compared to the industry average of (0.058). P/S Ratio (5.356) is also within normal values, averaging (111.369).
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Fundamental Analysis Ratings
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