Netflix Gains 15% on Profitability Boost, Subscriber Growth: Is it Time to Buy, Though?

Streaming giant Netflix (NFLX) is up 15% so far in Thursday morning’s trading session after the company delivered solid third-quarter earnings, which featured a boost to both profitability and subscribers.

We’ve talked about the company’s efforts to crack down on password sharing in the past and what it could mean for the streamer financially. And now, Netflix is reaping the benefits after adding almost 9 million subscribers in the third quarter alone. Total subscribers now sit around 246 million globally.

But, Netflix doesn’t intend to slow down anytime soon. The expectation is that the streamer could match that number in the final quarter of the year – especially now that the writer’s strike is over and new programming will be added.

Profitability is on the up and up, too. While analysts were forecasting $3.49/share, Netflix reported $3.73/share. This signified more than 20% improvement year over year. 

This trajectory will continue ahead as well as the company says it’s going to raise prices in key markets – the US, Canada, and the UK. While ad-tier pricing will remain the same, the basic and premium plans are going to get a bump.

Investors were a bit concerned after CEO Greg Peters spoke at a media conference and insinuated that the goal was to prioritize market share over profits. The changes the company is making to pricing should put these worries to rest, though.

Peters spoke to this issue saying that engagement and profitability growth aren’t going to come up raising subscriber growth alone – although that is a goal. The company is optimizing monetization through paid sharing, scaling ads, and more sophisticated pricing tiers.

Shares are now up 50% in the last year, and analysts have raised their price targets across the board – with one analyst putting a target of $600. 

That being said, is now the time to buy NFLX? We’re not so sure, as we’ve taken a look through the VectorVest stock forecasting software and found three things that left us skeptical…

Despite Very Good Safety, Upside Potential and Timing are Just Fair for NFLX

The VectorVest system simplifies your trading strategy by giving you all the insights you need to make calculated, confident investment decisions in 3 ratings. These are relative value (RV), relative safety (RS), and relative timing (RT).

Each sits on a scale of 0.00-2.00 with 1.00 being the average. This makes interpretation quick and easy. Better yet, you’re presented with a clear buy, sell, or hold recommendation for any given stock, at any given time based on the overall VST rating for a stock. As for NFLX:

• Fair Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (forecasted 3 years out) to AAA corporate bond rates and risk. It’s a far superior indicator than a simple comparison of price to value alone. And right now, the RV rating of 0.99 is just below the average for NFLX, which is deemed fair. That being said, the stock is overvalued with a current value of just $270.
• Very Good Safety: The RS rating is an indicator of risk. It analyzes a company’s financial consistency & predictability, debt-to-equity ratio, and business longevity. NFLX has a very good RS rating of 1.37.
• Fair Timing: Despite climbing 15% today, NFLX has actually been on the downward trend for a while. The stock is still down more than 10% in the past three months. That being said, the RT rating of 1.03 is just fair right now. This rating is based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year.

The overall VST rating of 1.14 is good for NFLX - but is it enough to earn the stock a buy rating? Not quite. VectorVest still has this stock rated as a hold - which you can learn more about through a free stock analysis today.

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VectorVest advocates buying safe, undervalued stocks, rising in price. NFLX is up 15% and counting after delivering solid third-quarter earnings. However, it’s not quite time to buy this stock. While it does have very good safety, its upside potential and timing are just fair.

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