NETFLIX INC (NASDAQ:NFLX) – A Strong Growth Stock with a Technical Breakout Pattern

NETFLIX INC (NASDAQ:NFLX) was identified by our screener as a strong growth stock with a favorable technical setup. The company combines solid fundamental growth metrics with a bullish chart pattern, making it an interesting candidate for investors seeking growth opportunities. Below, we examine why NFLX meets these criteria.

Strong Growth Fundamentals

NETFLIX demonstrates robust growth, supported by the following metrics:

• Revenue Growth: Revenue increased by 15.0% over the past year, with an average annual growth rate of 14.1% over the last several years.
• Earnings Growth: Earnings per share (EPS) surged 46.8% in the past year, with a five-year average annual growth rate of 36.9%.
• Future Expectations: Analysts project continued EPS growth of 19.8% annually, alongside an 11.0% expected revenue growth rate.

The company also scores well on profitability, with an 8/10 rating in this category. Key highlights include:

• High Margins: Operating margin of 27.7% and profit margin of 23.1%, both well above industry averages.
• Strong Returns: Return on equity (ROE) of 38.6% and return on invested capital (ROIC) of 22.9%, indicating efficient capital use.

Healthy Financial Position

NETFLIX maintains a solid financial foundation, earning a 7/10 health rating:

• Low Bankruptcy Risk: An Altman-Z score of 13.6 suggests strong financial stability.
• Manageable Debt: A debt-to-free-cash-flow ratio of 2.0 indicates the company can comfortably cover its obligations.
• Share Reduction: The number of outstanding shares has decreased over the past year, which can improve per-share metrics.

Bullish Technical Setup

The stock is currently exhibiting a bull flag pattern, a continuation signal following a strong upward trend. Key technical observations include:

• Trend Strength: Both short-term and long-term trends are positive.
• Support Levels: Strong support zones exist between $1,211.65 - $1,225.01 and $1,109.99 - $1,131.53, providing downside protection.
• Relative Strength: NFLX has outperformed 94% of all stocks over the past year and 91% of its entertainment industry peers.
• Volume Confirmation: Recent pullbacks have occurred on lower volume, a positive sign for continuation.

Valuation Considerations

While NFLX is not cheap, its valuation is reasonable relative to its growth:

• P/E Ratio: At 57.9, it is below the industry average, with 70.8% of peers trading at higher multiples.
• Forward P/E: The forward P/E of 38.9 suggests earnings growth is expected to improve valuation over time.

Our Strong Growth Stocks with Good Technical Setup Ratings screener lists more stocks with similar characteristics.
For a deeper analysis, review the full fundamental report for NFLX or the technical report.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should always conduct your own research before making investment decisions.