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Buy or Sell: Netflix (NFLX)

Eric Dutram

One stock that is guaranteed to elicit strong opinions from investors—both bullish and bearish—is Netflix (NFLX). The online movie rental company has become a household name thanks to its ubiquitous red envelopes and it is also becoming an increasingly controversial stock choice thanks to its high levels of volatility and uncertain business prospects.

Adding to the conflicting opinions over the stock is just how extreme the moves have been in NFLX shares over the past two years.

If investors got in to the company in July of 2011, they could have seen a near 60% loss in a matter of months. Meanwhile, if they bought in at the beginning of 2013, a nearly 100% gain would be on the books.

This interesting situation means that no matter if investors have been bullish or bearish about the company, they have been proven right at some point for Netflix. And now with the latest surge in the company’s shares many are wondering, what’s next for NFLX?

Personally, I think the company could go either way at this point, and that investors shouldn’t be too surprised no matter what happens in the future for the company’s shares. But what do you think about NFLX at current levels?

Reasons to Buy:

  • Earnings growth remains absolutely remarkable with current year (yoy) estimates coming in at 310%, while next year figures are forecasting growth of nearly 127%.
  • The company also has a history of crushing estimates, as evidenced by four straight earnings beats with three that were at least 160% above the consensus estimate.
  • The firm is currently showing a positive earnings ESP. When this is combined with a neutral to positive Zacks Rank, it can be indicative of an earnings beat for the upcoming quarter.

Reasons to Sell:

  • We have been here before with NFLX, as the last time we saw a surge of this magnitude, dark days followed for the stock.
  • The forward PE is astronomical at over 150. How long can Netflix justify such a high ratio on this front?
  • The company is now only a Zacks Rank of 3 or ‘hold’. This is a downgrade from just a few days ago, suggesting that other stocks are becoming move favorable from an earnings estimate revision perspective.

What do you think? Are you still a fan of this company’s growth prospects or is it overvalued at these lofty levels?

Let us know in the comments below!

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