Investors are giving up on Netflix. Is this a good reason to buy?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jan 24, 2022
  • Netflix is sinking its fortunes, and the fourth-quarter earnings report only made things worse.
  • The stock has been on a downtrend. Currently, it’s way below its 200-day moving average.
  • However, the company has stated that it expects to be profitable this year and will start rebuying its stock.

Netflix, Inc. (NASDAQ:NFLX) stock has been in free fall for months. There were concerns about rising competition from Walt Disney (NYSE:DIS), Apple (NASDAQ:AAPL), and others, as well as consumer reaction to a recent price rise, leading up to this week’s pivotal fourth-quarter earnings release.

With the NASDAQ Composite firmly in correction territory—down more than 10% from its November peak—an encouraging report was hoped to resuscitate Netflix’s sinking fortunes, as well as the fortunes of tech companies in general.

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However, Thursday’s fourth-quarter earnings report turned out to be significant, but not in the way that bulls had hoped. This is because from the report, Netflix missed subscriber forecasts, which is the only metric that investors care about.

Is Netflix still a growth stock?

Source – TradingView

On the daily timeframe, technical analysis of the Netflix stock price chart shows that the stock has broken below the 200-day moving average, which had been leveling down.

After the price broke below the lower boundary of the Donchian channel around $506.71, many analysts predicted the bearish momentum would continue. And this outcome turned out exactly as it had been predicted. 

The $575 level served as resistance for a while, but after it was able to hold above it, it was converted to support. Now that we’re back below the level, it’ll almost certainly become resistance again. The stock went on to undergo a significant negative move after breaking below this level, confirming the head and shoulders pattern.

In addition, The Relative Strength Index (RSI) fell sharply lower on Friday and now stands at 10. This is well into the oversold territory, indicating that there are many more sellers than buyers in the stock. Now, these levels can be used as an entry point and an opportunity to buy the dip.

Summary

Netflix has attracted about 55 million new customers in the last two years, bringing its total to nearly 33 million. The company has stated that it expects to be profitable this year and in the future and that it intends to return to the market and repurchase stock in the near future. This means that there is still value in the Netflix stock. And investors should buy and hold when everybody is panicking and selling.

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