Netflix (NFLX) Is Water-Logged And Getting Wetter Today

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.

Trade-Ideas LLC identified Netflix ( NFLX) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Netflix as such a stock due to the following factors:

  • NFLX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $555.6 million.
  • NFLX has traded 3.0 million shares today.
  • NFLX traded in a range 259.7% of the normal price range with a price range of $23.91.
  • NFLX traded below its daily resistance level (quality: 28 days, meaning that the stock is crossing a resistance level set by the last 28 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on NFLX:

Netflix, Inc. operates as an Internet television network, is engaged in the Internet delivery of TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally. NFLX has a PE ratio of 101.4. Currently there are 15 analysts that rate Netflix a buy, 2 analysts rate it a sell, and 12 rate it a hold.

The average volume for Netflix has been 2.5 million shares per day over the past 30 days. Netflix has a market cap of $23.0 billion and is part of the services sector and media industry. The stock has a beta of 3.02 and a short float of 10.9% with 4.07 days to cover. Shares are up 3.5% year-to-date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Netflix as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and generally higher debt management risk.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 12.6%. Since the same quarter one year prior, revenues rose by 27.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • NETFLIX INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, NETFLIX INC increased its bottom line by earning $1.85 versus $0.29 in the prior year. This year, the market expects an improvement in earnings ($3.41 versus $1.85).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • Despite currently having a low debt-to-equity ratio of 0.52, 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.
  • Net operating cash flow has significantly decreased to -$37.44 million or 207.91% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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