NFLX Stock Analysis: Looming Presidential Election Creates Extreme Gains, or Extreme Losses

BlairThe article was written by Blair Goldenberg, a Financial Analyst at I Know First, and enrolled in a Masters of Finance at Colorado State University.

NFLX Stock Analysis

Summary

  • Background on NFLX
  • NFLX Trading
  • Analysts Recommendations

Background

Netflix, Inc. (NFLX), is the largest internet television network provider offering online streaming of films, documentaries, television programs, and original programs, such as the hit series Narcos, by Netflix.

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On October 17, 2016, NFLX reported their Q3 earnings, which showed better than expected results. For more information on its Q3 earnings, read our previous article here. Stock price of NFLX went up because of the success in Q3, this isn’t unexpected being that I Know First has been bullish on NFLX for quite some time and continues to be bullish in the long term. However, there is a looming uncertainty over the United States Presidential Election. This may effect the stock market, not just NFLX, in a very negative way.

NFLX Trading

At market close on Friday, November 4, NFLX was down .11 points and stood at $122.03 per share. In the chart below, we can see that Netflix has actually been up in the last month. The sudden downward trend is very minimal compared to the increase in price that was seen after October 14, 2016. After the release of Q3 earnings on October 17, NFLX stock generated a golden cross, which is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. The golden cross signal confirms the stocks bullish market that may be to come. However, as of right now, many analysts have posted a hold rating on NFLX stock which I would agree with because of the recent uncertainty in the market as a whole, unless you want to partake in risky trading, selling shares of NFLX now and buying them back after the United States Presidential Election. NFLX stock analysis

The company itself seems to think that shares will continue to drop as a Director from the company sold personal shares of NFLX on October 31, 2016. Haley M. Timothy, another Director at Netflix, sold 23,728 shares and he now owns 0 shares of NFLX after this recent transaction. CFO David Wells sold 500 of his NFLX shares and received $63,150 through these transactions. Director Richard Barton also just recently jumped on the bandwagon and sold 2,800 shares in the company, making $346,948.00 through the transaction. Why is this so disconcerting? Because as someone who works at the company and as someone who is a leading figure in that company, they know the inner workings and the future and state of the company. If a few directors and a CFO are selling their shares, that may mean that there is going to be a large downturn in the stock price. These higher ups would have bought more shares had they thought the company would continue increasing its share price.

What could be happening is that because of the uncertainty in the market with the presidential election and the possibility of a large loss attributed to each candidate. Insiders at Netflix may be thinking about selling their shares at a high and buying them back if their stock plummets after the election, which would not only procure large returns instantaneously but may also help strengthen the company stance in the market after the election. As of now, we can only speculate on what the leaders of the company are thinking and why they are acting as they are.

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So there are actually two possibilities, both extremes. The company may see that they will perform poorly this quarter or they think that because of the election, they need to sell, make a quick profit and buy back shares once the stock market declines. It is important to note that Q4 will be ending in December and the company does project a $0.13 increase on the share for the quarter.

Analysts Recommendations

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Conclusion

The United States Presidential Election will come to a close on November 8, 2016. Once the stock market settles after the election, we will have a better idea about why the Directors have decided to sell of their shares, whether it be because the company isn’t doing as well as projected or because they know that the stock price will go down because of the election, causing them to buy back shares at an extreme low. The I Know First algorithm forecast shows that in the short term NFLX will perform well before Netflix earnings is due on January 17, 2017, but in about a year, the stock will be better equipped for a short position in the market. NFLX is up more than 25% since this bullish I Know First forecast on NFLX issued on August 28th.

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The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence.