NEW YORK (TheStreet) -- Netflix(NFLX) - Get Report stock is declining by 7.51% to $105.78 in morning trading on Monday following a rating downgrade to "neutral" from "outperform" at Baird Equity Research today.
The firm cut its price target to $115 from $128 on the stock.
After surging roughly 140% in 2015 to close the year as the top S&P 500 performer, the stock's risk-reward is balanced, the firm said in a note, MarketWatch reports.
U.S. subscribers will likely be weak for a second straight quarter given the results of a subscriber survey, the firm said, MarketWatch notes. Other risks include international execution, content costs and greater competition.
International subscriber results will likely increase, though "much of that is priced in," the firm contends.
"I think Netflix is a great company, but the stock has had a huge run and this is an opportunistic and self-explanatory downgrade after a big move. No need to be heroic. Let it fall, even if you love it and love shows like Narcos and Jessica Jones as I do!" TheStreet's Jim Cramer said.
He added that Netflix has "a lot cooking," but profit-taking is in order.
Investors should wait to buy Netflix shares, and instead purchase shares of utilities or a drug stock that is "down big" with a big yield, Cramer noted.
Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate NETFLIX INC as a Hold with a ratings score of C. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, robust revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, NFLX's share price has jumped by 138.03%, exceeding the performance of the broader market during that same time frame. Although NFLX had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- NFLX's revenue growth trails the industry average of 38.0%. Since the same quarter one year prior, revenues rose by 23.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The gross profit margin for NETFLIX INC is currently very high, coming in at 84.59%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.69% trails the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Internet & Catalog Retail industry and the overall market, NETFLIX INC's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$195.97 million or 423.43% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: NFLX