Netflix (NFLX) reported earnings last month and the stock tanked on news profits will come in under expectations. The big news for me is we lost the $10 profit estimate for 2016. Now that estimate is $7.49. That’s a huge drop. Money managers were looking at that $10 figure to equate NFLX’s fair value. Now that the $10 is $7.50 the stock needs to come down 25% too. Which it did.
One Year Chart
What’s also worth noting is Estimates for the next three quarters look bad. Next quarter’s especially, which got cut from 88 cents to 42 cents.
NFLX is selling for around 74 times 2015 earnings. That’s reasonable for the stock. Do note NFLX is hitting support levels here between $300 to $350. My guess is the stock hangs around here for a bit. At least until next quarter until we can get some clarity.
Fair Value
I feel Netflix is worth 60 times earnings, and the issue now is earnings estimates have fallen and that takes the stock’s Fair Value down too.
Sharek’s Take
Yes Netflix slashed annual profit estimates, but now that estimates for the next three quarters look bad (see the Earnings Table below) NFLX will have trouble attracting momentum investors. This is a great franchise to own, but I don’t feel this is a good time to get in.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
