Netflix (NASDAQ:NFLX) Presents a Strong Growth and Technical Setup for Investors

For investors looking to find promising growth chances with good technical setups, a combined method using ChartMill's own ratings can be especially useful. This process involves looking for stocks that show strong fundamental growth momentum, as measured by the High Growth Momentum (HGM) Rating, while also showing good technical health and a positive chart pattern, as shown by the Technical Rating and Setup Quality Rating, in that order. This layered plan tries to find companies that are not only increasing their earnings and sales at a fast rate but are also in a technical state that points to a possible near-term price increase.

High Growth Momentum Fundamentals

NETFLIX INC (NASDAQ:NFLX) presents a strong case for growth investors, earning a High Growth Momentum Rating of 6. This score shows strength across several important growth and momentum indicators that are central to the method, which focuses on earnings acceleration, positive surprises, and analyst revisions.

• Earnings Power: The company has shown considerable earnings growth, with EPS (TTM) reaching $23.47, representing a year-over-year increase of 46.7%.
• Quarterly Momentum: Recent quarterly performance has been solid, with the last quarter showing an EPS growth of 47.3% compared to the same quarter a year prior. While the preceding quarter grew at 25.2%, the quarter before that saw a notable 102.4% surge, indicating strong, though variable, earnings momentum.
• Profitability Expansion: A key part of the HGM rating is increasing profit margins. Netflix has shown clear improvement here, with its profit margin in the last reported quarter reaching 28.2%, up from 18.2% two quarters earlier and a full-year margin of 22.3% last year.
• Cash Flow Growth: Free Cash Flow per share has almost doubled over the past year, growing by 99.5% to $20.01, indicating good financial health and operational efficiency.
• Analyst Confidence: The growth story is further supported by analyst sentiment, with the average EPS estimate for the next year being revised upward by 2.9% over the last three months.

These factors together create an image of a company experiencing good fundamental growth, which is exactly what the HGM rating is made to find and what growth momentum investors look for.

Technical Strength and Market Position

From a technical viewpoint, Netflix is in a good position, having a ChartMill Technical Rating of 8. This high score shows the stock is in a healthy uptrend and is doing well compared to the wider market.

• Trend and Performance: The short-term trend is positive, while the long-term trend is neutral, suggesting the stock is stabilizing its large gains from the past year. Over the last 12 months, NFLX has done better than 88% of all stocks in the market.
• Industry Leadership: Within the competitive Entertainment industry, Netflix does better than 74% of its 80 peers, confirming its leading status.
• Moving Average Support: The stock is trading above all its important simple moving averages (20, 50, 100, and 200-day), which are all in a rising formation, providing a base of technical support.

Quality Setup for a Possible Breakout

Adding to its good technicals, Netflix has a Setup Quality Rating of 7, showing it is forming a positive consolidation pattern. According to the detailed technical report, the stock has been trading in a range between about $1134 and $1247 over the past month and is currently trading near the high end of this range.

• Resistance and Entry: A clear resistance zone is found between $1227.63 and $1245.09. A clear break above this zone could indicate the start of a new move higher.
• Support and Risk Management: An important support zone lies between $1191.18 and $1209.85, which brings together multiple trend lines and moving averages. This gives a logical level for placing a stop-loss order to handle risk.
• Automated Setup Suggestion: The analysis proposes a possible trading setup with an entry at $1245.10 (a buy-stop order above resistance) and an exit at $1191.17 (a stop-loss order below support), limiting the possible loss to about 4.3% on the trade.

This mix of a high technical rating and a clear setup pattern is what technical breakout investors search for, as it finds strong stocks that are pausing and may be getting ready for their next important move.

Finding Similar Chances

Netflix acts as a good example of a stock that meets the requirements for both high growth momentum and a positive technical setup. For investors interested in finding other companies that fit this specific profile, a pre-set screen is ready. You can find more results from this screen here.

Disclaimer: This article is for informational purposes only and does not constitute investment advice of any kind. All data and analysis are based on publicly available information. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. Trading stocks involves risk, including the potential loss of principal.