Why Netflix Is Not Streaming Profits

NEW YORK ( TheStreet) -- A very widely followed stock that continues to slide: Netflix ( NFLX). Even after a decent earnings report, the company can't seem to get any creditability with the investing public. During the last month, the stock has dropped an additional 15.77%, as is evidenced by this hourly trading graph provided by Barchart :

Over the last six month, the stock hasn't even been able to compete against the market. The market, as measured by the Value Line Index, dropped 5% in the last six months, while Netflix tanked 49%.

Is there any chance at all that the stock's price will recover?

Netflix provides Internet subscription services for TV shows and movies in the U.S. and internationally. The company offers its subscribers a chance to watch unlimited TV shows and movies streamed over the Internet to their TVs, computers and mobile devices. It also provides standard definition DVDs and Blu-Ray discs to its subscribers. The company was founded in 1997 and is headquartered in Los Gatos, CA.

Factors to Consider

Barchart technical indicators:
  • 80% Barchart technical sell signal
  • Trend Spotter sell signal
  • Trading below its 20-, 50- and 100-day moving averages
  • Lost 15.77% last month
  • Lost 28.09% last quarter
  • 78.59% off its one-year high
  • Relative Strength Index 29.72%
  • Recently traded at 57.73, which is way below its 50-day moving average of 70.53
Fundamental factors:
  • Widely followed by Wall Street where 21 brokerage firms have assigned 33 analysts to issue opinions on the issue
  • Analysts project that revenue will increase by 12.70% this year and another 15.00% next year
  • Earnings are estimated to decrease by 99.80% this year but increase by 2,425.00% next year and continue to increase by an annual rate of 16.58% over the next 5 years (That large figure is correct, as the stock pulls out of negative terrain.)
  • These consensus numbers resulted in 2 strong buy, 6 buy, 18 hold, 6 under perform and just 1 sell recommendation for clients to consider
  • If the analysts' projections are correct, they predict investors should see a 21% to 25% annual total return over the next 5 years
  • The P/E ratio is 29.69 compared to the 14.20% P/E of the market
  • No dividend is paid
  • The company has an A balance sheet rating
  • The public does not seem happy with its pricing policies
  • Profits from the U.S. divisions are being used to fund expansion in the overseas markets -- time will tell if this is a good strategy
Investor interest:
  • Widely followed by both the professional and individual investors
  • As pointed out above, recommendations from Wall Street are mixed
  • Some popular individual investors' Web site are still very high on the stock
  • Short interest remains high but level
  • Jim Cramer has not been kind to this stock
  • TheStreet Ratings give the stock only a C ranking
Analysts and columnists can have their opinions, but the market gets the final vote. In the last year, Netflix is down 78% while its competitors rise: Google ( GOOG) is up 7%, Amazon ( AMZN) is up 11% and eBay ( EBAY) is up 43%:

  • TheStreet Ratings: B
  • Revenue projected to increase by 45.10% this year and 27.80% next year
  • Earnings estimated to increase by 18.00% this year and 16.10% next year
  • TheStreet Ratings: C+
  • Revenue projected to increase by 30.90% this year and 28.30% next year
  • Earnings estimated to decrease by 10.90% this year but increase by 132.00% next year
  • TheStreet Ratings: A
  • Revenue projected to increase by 20.20% this year and 14.90% next year
  • Earnings estimated to increase by 15.80% this year and 16.60% next year
Conclusion: I do not advise anyone to add to a present position or enter into a new position in Netflix. Although the company has a solid balance sheet and a product that the public continues to buy, I have concerns that the market will not be kind to the stock.

Too many unaddressed issues are pending to give any reliable earnings projections. For those of you who just can't let go of you interest in this issue, just follow the moving averages and turtle channels, but don't risk your capital:

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.