Netflix: Is This the Perfect Time to Buy a Streaming Powerhouse?

Key Points

• Netflix's successful expansion into live sports programming demonstrates a significant new avenue for growth.
• The company's continued investment in diverse, high-quality original content across multiple global markets is attracting critical acclaim and growing its audience.
• Strong underlying technical indicators combined with generally positive analyst sentiment suggest that the stock may be positioned for a rebound.

 

Netflix NASDAQ: NFLX has revolutionized how the world consumes entertainment. However, Netflix’s stock has experienced a recent pullback from its all-time high of $941.75, reached on December 11, 2024. The stock is currently trading around $875.00, marking a 1.83% decrease year-to-date. This dip, however, follows a remarkable year in which the stock surged by over 81%.

Investors are left to question if the pullback is a sign of trouble or a golden opportunity to buy into a company with a proven track record and a bold new strategy. A closer look at the technical indicators, analyst sentiment, and Netflix's strategic initiatives suggests that the current dip could indeed represent a buying opportunity for those with a long-term perspective.

Technical Signals Suggest a Potential Rebound

Technical analysis offers some intriguing insights into Netflix's current stock trajectory. One key indicator is the 50-day moving average, which represents the average closing price of a stock over the past 50 trading days. Netflix's stock is currently nearing this 50-day moving average, a potentially significant development. When examining past performance, it's notable that after similar approaches to this moving average following a period of trading above it, Netflix's stock has historically shown a tendency to rebound. In fact, data going back the last few years reveals that such an occurrence has resulted in a positive return one month later, 63% of the time, with an average gain of 4.6%. This pattern suggests that the current pullback might be a temporary dip before a potential rebound.

Further supporting this bullish outlook is the activity observed in the options market. The 10-day put/call volume ratio, which measures the ratio of put options (bets that the stock will fall) to call options (bets that the stock will rise), currently stands at 1.11 across major options exchanges. This ratio is higher than 97% of readings from the past year, indicating a significantly higher-than-usual level of bearish sentiment among options traders. Often, when pessimism reaches such elevated levels, it can be a contrarian indicator. This suggests that the negative sentiment may already be factored into Netflix’s stock price, potentially leaving room for an upward move should the company's fundamentals remain strong. Additionally, the current volatility expectations, as reflected in options pricing, are relatively low. This makes options strategies potentially more attractive for those looking to capitalize on a possible rebound.

Analysts Remain Optimistic Despite Recent Dip

Despite the recent stock price dip, many in Netflix’s analyst community remain optimistic about Netflix's future. The consensus rating for the stock is a Moderate Buy, with an average price target of $824.30. While this target is slightly below the current trading price, it's important to note that several analysts have recently upgraded their ratings and increased their price targets. 

Notably, Pivotal Research has set a street-high price target of $1,100.00, reflecting a strong belief in Netflix's long-term growth potential. Furthermore, 17 out of 31 analysts currently rate the stock as a Hold or worse, suggesting there is ample room for upgrades if the company continues to execute its strategic initiatives successfully. These upgrades and revised price targets often follow positive developments, such as the successful launch of the NFL games on the platform.

A Closer Look at the Fundamentals

Netflix's financial performance provides a solid foundation for its future growth. Netflix’s earnings report for the third quarter of fiscal year 2024 (Q3 FY2024) showed earnings per share (EPS) of $5.40, beating analyst consensus estimates of $5.09. Revenue for the quarter reached $9.82 billion, also exceeding expectations. For the full year 2024, Netflix projects revenue growth of 14-15% and has increased its operating margin forecast to 26%, up from the previous guidance of 25%. This strong financial performance demonstrates the company's ability to generate substantial profits and manage costs effectively. Analysts are projecting an earnings growth of 19.46% in the next year.

Content Remains King

Netflix's live sports streaming has shown early success with NFL Christmas Day games and WWE's "Monday Night Raw." These NFL games drew an average of 30+ million global viewers, becoming the most-streamed in US history. "Monday Night Raw" also attracted an impressive 4.9 million viewers, surpassing recent viewership.

Netflix's vast content library and commitment to original programming remain its core strengths. Shows like "Squid Game" and "Heeramandi" have become global hits, and the company received 107 Primetime Emmy Award nominations. Netflix is also testing a new homepage design and has a strong pipeline of upcoming releases.

A Calculated Risk Worth Considering?

Netflix's recent stock dip, while concerning to some, presents a compelling opportunity for investors with a long-term horizon. The company's move into live sports has proven to be a success, attracting record-breaking viewership and demonstrating Netflix's ability to execute on this new front. This, combined with a solid content strategy that continues to deliver critical acclaim and commercial success, solidifies the company's position as a global entertainment leader. 

Netflix's strong fundamentals, including healthy revenue growth, expanding margins, and a growing subscriber base, suggest the company is well-positioned for continued expansion despite fierce competition in the streaming sector and substantial costs associated with live sports rights and original content production. Furthermore, technical indicators, coupled with the potential for continued analyst upgrades and the inherent value of its growing ad business, provide a bullish outlook for a stock rebound. Investors considering taking a position in Netflix should carefully weigh the risks. Still, the current dip may very well represent a strategic entry point into a company that continues to redefine the future of entertainment.