Netflix (NFLX): Has The Stock Peaked?

Netflix NFLX

Netflix (NASDAQ:NFLX) stock recovered to $396, up nearly 3 percent, in early trading Tuesday after hitting an intraday low of $378.75 in Monday’s Nas session. The streaming video giant’s stock – which as of 3:30 p.m. ET was down 7%, its biggest drop in nearly two years – got swept up in a broad-based sell-off in tech and semiconductor stocks prompted by Trump’s intensifying trade war that weighed sharply on the Nasdaq. In fact, stocks like Square (NYSE:SQ), Twitter (Nasdaq:TWTR), Nvidia (Nasdaq:NVDA) and Stitch Fix (Nasdaq:SFIX) also fell Monday, sinking 6%, 5%, 4% and 10%, respectively.

Netflix shares have surged by over 100% year-to-date and 140% year-over-year (y/y). The surge is attributed not only to the fact the company has exceeded 30% y/y growth in revenue in each of the last five quarters but also to optimism around international subscriber growth. This combination pushed ticker back in June to a record all time high of $423.21 and perhaps in the process drive the name too fast toward its current overbought levels. In fact, even with yesterday’s sharp decline, NFLX’s relative strength index (RSI) still prints above 64.The RSI would need to decline to about 30 for the stock to be considered oversold. Additionally, according to a short-term chart technical analysis by Mott Capital’s Michael Kramer, Netflix may not be finished falling yet and could shed 15% from its peak.

Kramer argues that after hitting its all time high, NFLX fell to $386, below support at $392. The next support for Netflix comes about 7.5% lower, at $357, thus the 15% nosedive conclusion.

That said however, Wall Street’s optimism around the stock continues. Last month GBH Insights raised their NFLX price target (PT) to $500 per share, the highest such figure on the Street. Piper Jaffray also raised its PT on the name by more than 14% to $420 per share, citing data that suggests the company is poised for massive international subscriber growth.

Netflix’s subscriber growth has reached an average of 24% over the past four quarters. The Los Gatos, California-based company currently boasts 125 million subscribers globally.

At time of writing, Netflix stock is up more than 4% and trading above $401.

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