Netflix stock price analysis: short-term retreat to $1,060 likely

Netflix stock price surged to a record high of $1,259 this month, making it one of the best-performing technology companies. It has jumped by over 670% from its lowest point in 2022, bringing its market capitalization to over $515 billion. Let’s explore why the NFLX stock has surged and what to expect. 

Why Netflix stock price has soared

Netflix share price has jumped by 36% this year, making it one of the best-performing companies in the Magnificent 7. 

This performance happened as the company’s growth accelerated. Its annual revenue has jumped from $24.9 billion in 2020 to $40 billion in the trailing twelve months (TTM).

Netflix has also continued to add users to its platform. It had over 301.6 million active subscribers in the last quarter, a big increase from 232.5 million in the same period in 2023.

The company has also won the battle of the soaring competition from companies like Disney, Amazon Prime Video, Hulu, HBO, and Apple TV+. All these companies have struggled to add more customers to its platform. 

The most recent results show that Netflix’s business continued to do well in the last quarter. Its revenue rose to $10.5 billion in the last quarter, up by 12.5% from the same period in $9.3 billion. 

The company’s operating income rose to $3.34 billion in the first quarter from $2.633 billion in the same period last year. Its net income continued soaring, reaching a high of $2.8 billion. 

This growth happened as the company dropped some popular series like Adolescence, Bank in Action, and Counterattack. 

Analysts anticipate that the company’s growth will continue in the coming months. The average estimate is that Netflix’s revenue will grow by 15.4% in the second quarter to $11 billion. This revenue estimate is higher than the company’s guidance of $11 billion. 

Netflix’s annual revenue is expected to come in at $44.4 billion, followed by $49.82 billion next year. The company has also emerged as a trade war survivor.

NFLX valuation concerns

A key concern that many people have is that the Netflix stock price has become highly overvalued. It has a forward price-to-earnings (P/E) ratio of 47, higher than the median estimate of 18.6. This multiple is also higher than the five-year average of 43. 

The forward EV to EBITDA multiple of 39 is higher than the median estimate of 17. These valuation metrics mean that the company is highly overvalued since its P/E ratios are much higher than those of other Magnificent 7 firms. This explains why the current Netflix stock price is higher than the average estimate by analysts.

However, it is normal for growing companies with a large market share to spot higher valuation metrics. A good example of is companies like Visa and Mastercard that are perpetually overvalued. 

Read more: JPMorgan cuts Netflix rating, citing balanced risk-reward post-rally; stock falls

Netflix stock price analysis

The weekly chart shows that the NFLX share price has been in a strong bull run in the past few months. It recently moved above the key resistance level at $1,061, its highest swing on February 18.

The stock price remains above the 50-week and 100-week Exponential Moving Averages (EMA), a sign that bulls are in control. 

The MACD indicator has continued rising and is nearing the key point at 100. Also, the Relative Strength Index (RSI) has moved above the overbought level of 68. 

The most likely scenario is where the Netflix stock price retreats and retests the key support at $1,060. This price action is known as a break-and-retest and is one of the most popular continuation signs.