How High Netflix (NFLX) will Go?

Netflix (NFLX) has been a shining star and shorts have been pushed against the wall time and again. After lingering between $20-$40 for several years, NFLX has gone from $50 to $200 YTD alone, in a 45degree straight line. See attached chart for YTD performance-

After watching it for sometime, I am amazed by the wonderful performance of NFLX. 300% in a year! If there was anything like “recession proof investment” then I think NFLX will rank amongst the top.  The ride wasn’t a smooth sailing though as there were pull backs good enough to throw the weakest of the pack out of the race.

From business fundamentals, I am not impressed. But that’s me because I like to buy things cheap. Here is a snapshot of fundamentals from MorningStar.com and see for yourself if this is something you would like to hold for long term. This is just the big picture and by no means is a complete fundamental analysis of the company.

Courtesy MorningStar.com

Don’t the forget stock investing one-on-one  that stock price is essentially a claim on “long term” cash flow. There is a big IF for such rich valuations for NFLX and that is “growth”. I won’t go into what their “economic moat” or “sustainable competitive advantage” is because I am not sure if there is one really, but recent developments may at least raise some concerns. While NFLX lovers may say that @75+ P/E, NFLX is still priced for growth, be my guest. There are greener pastures.

If I am not bullish that doesn’t mean I am going to start shorting it.  NFLX is known to kill shorts. I would rather trade NFLX via technicals using Option Trading Strategies; in the two giant channels as shown in the charts above. While some may say that closing above $205 was a breakout, I would rather open-up some bearish spreads (as speculative trades) as opposed to being bullish. Albeit, with only a fraction of capital as speculative trade.

Disclaimer– As of this writing I hold bearish speculative positions on NFLX but I may change anytime. Pls do your due diligence before investing or following this idea. NFLX is not for the weak hearts. Make sure you have a good plan to trade it.

Profitable trading, OP


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3 responses to “How High Netflix (NFLX) will Go?”

  1. […] P&L of speculative trades as those were not part of OPN income portfolios. Since I posted NFLX free trade idea, NLFX has dropped almost $20!! Read the post to know where the next opportunity might be. Since my […]

  2. […] Dec 2010, I shared a simple technical chart for Netflix raising questions that how will it go?  Soon after that Netflix decline almost 40points. I don’t […]

  3. […] of results and stock is trading down almost -5% in the after market hours. I have mentioned NFLX first here , then here and we traded it both times pretty successfully. Before I dive for another trade, here […]

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