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Why Netflix Stock Is Trading At Yearly Highs

By:
Vladimir Zernov
Published: Sep 2, 2021, 15:45 UTC

The stock is trying to get to the test of the $600 level.

Netflix

In this article:

Netflix Stock Moves Towards The $600 Level After Analyst Upgrade

Shares of Netflix gained additional upside momentum and moved closer to the $600 level after the stock was upgraded by Citi.

Analyst estimates have been moving higher in recent weeks although they remain below previous highs. Currently, analysts expect that Netflix will report earnings of $10.45 per share in 2021 and $12.81 per share in 2022, so the stock is trading at roughly 47 forward P/E.

This is a rich valuation, but today’s market is ready to tolerate even higher multiples (for example, Tesla) if the company is a major force in the market it serves and has solid growth potential.

Recent reports indicated that Netflix’ shows were more popular compared to competition in the streaming space, and it looks that the market expects that the company’s pricing power should increase.

What’s Next for Netflix Stock?

Netflix shares moved from the $510 level towards the $600 level without any pullback, and the stock’s RSI reached extremely overbought levels. From a technical point of view, the risks of a near-term pullback are increasing as some traders will likely use the recent rally as an opportunity to take some profits off the table.

From a longer-term point of view, Netflix has decent chances to settle above the $600 level and continue its upside move in case the general market continues to move higher.

While forward P/E is close to the 50 level, traders will likely ignore valuation concerns if the company shows a clear path to future growth. As the streaming space gets crowded, the market may focus on pricing power rather than subscriber growth, and Netflix shares may get an additional boost in case the popularity of the company’s shows translates into higher prices for its customers.

The potential for multiple expansion is limited at this point, but the potential for earnings’ estimates growth is not. If earnings estimates keep moving higher, Netflix stock will get more support.

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About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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