Netflix Reaches All-Time High, Would it Slow Down Now?

Netflix, Inc. NFLX hit a new 52-week high of $132.20, though closing much lower at $126.81. Shares closed lower as investors sold their stake to book profits. In fact, the company also saw some insider selling activity yesterday.

So far, 2015 has been a happening year for Netflix with the stock on bull run for most of it driven by its relentless international expansion and diversified content portfolio. In the year-to-date time frame, Netflix has returned about 160% compared with the S&P 500’s decline of 0.4% in the same period.

The company’s subscribers have increased owing to its strong content offerings and the rising demand for streaming services. But with the increase in subscription charges by Netflix from this October, the growth rate is likely to slow down. In addition, increasing content acquisition costs and mounting competition from peers like Hulu and Amazon AMZN can put a brake on the company’s bull run. Even Alphabet’s GOOGL YouTube has been vying to get streaming rights to premium content in a bid to ramp up its new subscription service, which will further heat up competition.

This is probably the reason behind all the selling. Even according to our model, the stock is a bit overpriced. Though the company’s long-term growth estimate of 21.2% is better than the industry's expected growth rate of 8.1%, its PEG ratio of 505.61 compares unfavorably with the industry’s figure of 30.6, indicating the possibility of a downside going ahead.

Also, the company’s earnings estimate for 2016 has been going down for a while now, thereby adding to prevailing concerns.

Currently, Netflix has a Zacks Rank #3 (Hold). A better-ranked stock in the broader tech space is MeetMe MEET, sporting a Zacks Rank #1 (Strong Buy).

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