Time to buy Netflix as it consolidates between $180 and $190?

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 May 28, 2022
  • Netflix is trading at a highly discounted valuation of $187
  • The stock has consolidated in the current price range
  • The stock is projected to beat expectations in the next earnings call

Netflix (NASDAQ:NFLX) has consolidated between $180 and $190. Traders have a wait-and-see attitude towards the stock. Investors are keen on what the future holds. The company is making strategic moves to manage costs and maintain growth in revenues.

Netflix hit the 52-week low of $162 when it announced a decline in subscribers in Q1. The news caused a more than 40% slump in the stock price. We think that investors overreacted. It is just a matter of time, a maximum of one month before the investors realise this. Then greed will set in as they troop to the counter.

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Understanding the decline in subscribers is critical to any trading and investing decisions on Netflix. In straightforward words, Netflix did not lose subscribers. Instead, it closed subscriber accounts that were rife with account sharing. Netflix simply sealed loopholes through which revenue was lost. The company still leads in the global streaming business. Subscribers affected by the move would likely reopen their accounts and start playing.

Another move for which Netflix has been critiqued is the layoffs. From the 11,000 employees, Netflix has laid off only 150. The argument is that Netflix did so to streamline costs. In a real sense, the layoffs were just meant to change how Netflix promotes its business.

There is an Achilles heel in the strategies that Netflix is pursuing. The brand is still considering introducing ads to its streaming business. That is what would likely push customers out. We will need to wait a month until the next earnings call to determine how that turns out.

Netflix is a highly discounted stock now

Source – TradingView

The price has stabilised between $180 and $190. It is still close to the bottom and highly discounted. The RSI at 20 shows the stock is already oversold. With this week’s valuation blowing warmth onto the price, it is likely that Netflix will gain.

Summary

Traders may be fearful of Netflix, but investors see a highly discounted opportunity. With approximately one month to Q2 earnings, the expectation is that the stock will gain. Take a position in advance.

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