What To Hold: Netflix Inc.'s Hold Recommendation Reiterated

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- Netflix (Nasdaq: NFLX) has been reiterated by TheStreet Ratings as a hold with a ratings score of C. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and generally higher debt management risk.

Highlights from the ratings report include:
  • NFLX's revenue growth has slightly outpaced the industry average of 18.1%. Since the same quarter one year prior, revenues rose by 20.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The gross profit margin for NETFLIX INC is currently very high, coming in at 80.03%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 2.75% is above that of the industry average.
  • NETFLIX INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NETFLIX INC reported lower earnings of $0.29 versus $4.17 in the prior year. This year, the market expects an improvement in earnings ($1.46 versus $0.29).
  • Despite currently having a low debt-to-equity ratio of 0.45, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that NFLX's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.65 is low and demonstrates weak liquidity.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. 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.

Netflix, Inc. provides Internet television network service that enables subscribers to stream TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally. Netflix has a market cap of $15.3 billion and is part of the services sector and specialty retail industry. Shares are up 180.6% year to date as of the close of trading on Tuesday.

You can view the full Netflix Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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