NETFLIX STOCK HOLDING UP BETTER THAN MOST GO-GO STOCKS - CAN THAT LAST?

NetFlix, Inc.

has certainly pulled back off of its September highs – just as the market has. However, two things distinguish NFLX from the market. First, NFLX peaked out at $486.30 on September 9th – a little over a week before the S&P 500 topped out. Second, while the market has been setting new short-term lows over the last two trading sessions, NetFlix stock finished Friday $13 - $14 above the lows set by the stock on October 1st. How does NetFlix look from a fundamental and technical perspective? The fundamental picture for NetFlix… Everything looks good in terms of the fundamentals of NetFlix's operations – a good balance sheet, strong earnings and cash flows. However, that strength comes with a price. NetFlix is “expensive” by every valuation metric – a P/B ratio of 17.23 (where 3 is considered fairly valued), a P/S ratio of 5.67 (where 5 is considered fairly valued), a market capitalization that exceeds the company's enterprise value and a P/E ratio of over 70 versus estimated growth rates in revenues and earnings of 24.8% and 69.3%. The technical outlook for NFLX… Technicians note that NFLX appears to be in the “c” wave of a short-term “abc” upside move that will make up wave “B” of a larger “ABC” downside correction. This outlook will remain intact as long as $451.38 holds up on the downside. The upside target for wave “c” come in at $481.30. Once that level is tested – and assuming it holds up as resistance – the next move lower (wave “C” of the “ABC” downside correction) should theoretically take the stock down to the $432 - $434 range. Overall… NetFlix – the company - is under tremendous pressure to continue to execute flawlessly. The valuations are such that any hiccup in execution will be all the reason the bears will need to drive this stock far lower than even the recent sell-off took it. Short-term trading aside, those looking to make a bullish bet in NetFlix will likely be doing so aggressively once the “C” wave plays out and the $432 - $434 level is tested. For those looking to short NetFlix, the best play may be to wait for wave “c” higher to play out and for the $481 level to be tested.