Netflix (NFLX) Dives on Worries Over Political Uncertainty

NEW YORK (TheStreet) -- Netflix  (NFLX) dropped 5.1% to $302.10 as of 1:17 p.m. New York time. The company has traded between $299.57 and $321.52, after opening the day at $319.29. The company is lagging the S&P 500 which is down 0.57%.

Netflix has been one of the biggest gainers of the year, rising 226.54% since January. Netflix, alongside the year's other triple-digit growth stocks including Yelp (YELP) and Zillow (Z), are plunging on investor fear over current political uncertainty in Washington.

The government shutdown, stretching into its eighth day, is a result of a stalemate among Congressional leaders to agree on a new budget. The fears also stem from concerns the government will default on its debt obligations if it doesn't raise the debt ceiling by October 17.

"Many of the recent winners are breaking key levels," said 'Real Money' contributor James 'Rev Shark' DePorre in his analysis Tuesday. "It is very likely that many of these stocks will bounce back sharply at the first hint of some sort of Washington deal."

TheStreet Ratings team rates Netflix Inc as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate Netflix Inc (NFLX) a HOLD. 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 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, premium valuation and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NFLX's revenue growth has slightly outpaced the industry average of 17.8%. 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 29 cents a share vs. $4.17 a share in the prior year. This year, the market expects an improvement in earnings ($1.46 vs. 29 cents).
  • 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.

Written by Keris Alison Lahiff.

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