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Netflix stock tracks for worst month since September 2019 — Why it's a buy here - CNBC

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A sell-off in high growth and momentum stocks has come for Netflix this month.

The streaming stock has lost more than 8% in December, tracking for its worst month since September 2019. Netflix is the worst performer among the FAANG stocks — Meta, Amazon, Apple, Netflix and Alphabet — in December.

But that weakness presents a buying opportunity, according to Todd Gordon, founder of Inside Edge Capital Management. The firm already owns Netflix, but Gordon says at a 1% allocation of its growth portfolio that position could be increased.

"Technical support is clearly defined, I like the fundamentals, I like the chart, so I'm looking to add exposure to Netflix," Gordon told CNBC's "Trading Nation" on Thursday.

Gordon highlights an area of 2020 resistance around $575 that has now become a support level. The stock has fallen back after peaking in mid-November and now looks to test that support. Gordon sees this as a technical entry point.

On top of that, Netflix also has a second uptrend support line stretching back from early 2020 through this summer. Shares traded Friday at $587.

"The part that I like about Netflix is they're committed to growing their original content, relying less on licensed content, and the numbers certainly reflect that. They spent about $17 billion on original content this year, which is up from about $12 billion last year," Gordon said.

Even as its original content spending has ballooned, the company has managed to expand its operating margins. Margins have grown from 7.2% in 2017 to 18.3% in 2020. As of its third quarter ended September, margins improved again to nearly 23%.

"I'm also struck by the sort of about-face story that we're getting from a lot of people who are claiming that streaming companies like Disney and Hulu and Amazon and Apple are going to take a lot of market share from them. And what it comes down to is they're simply not spending on original content like Netflix is," Gordon said.

Netflix added 4.4 million global paid subscribers in its third quarter and expects 8.5 million more in the three months ended December. The company has a total 214 million paying subscribers worldwide.

Disclosure: Inside Edge Capital Management holds shares of Netflix.

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Netflix stock tracks for worst month since September 2019 — Why it's a buy here - CNBC
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