Will Netflix Stock Continue This Bull Run?

With shares of Netflix (NASDAQ:NFLX) trading around $250, is NFLX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Netflix is an Internet subscription service that streams television shows and movies. The company's subscribers can watch unlimited television shows and movies streamed over the Internet to their televisions, computers, and mobile devices. In the United States, subscribers can also receive DVDs delivered to their homes. Netflix has revolutionized the television and movie industry with its services.

Just recently, the company struck a deal with Dreamworks Animation (NASDAQ:DWA) that is fueling demand for Netflix stock. Netflix is ramping-up its original programming menu with popular choices from the maker of Shrek, Madagascar, and Kung Fu Panda. On another note, Netflix shares fell on Tuesday after the company released an earnings report. The company beat analyst earnings and revenue expectations, however, it managed to only increase U.S. subscribers by 630,000. Investors had hoped that figure would be larger, especially because of Netflix's new original programming.

T = Technicals on the Stock Chart are Strong

After a bad last couple of years, Netflix stock has been experiencing a euphoric rise. The stock is now trading near highs for the year and looks poised to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Netflix is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Netflix options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Netflix Options	46.54%	20%	17%

What does this mean? This means that investors or traders are buying a very minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
August Options	Flat	Average
September Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Improving Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Netflix’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Netflix look like and more importantly, how did the markets like these numbers?

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	345.45%	162.50%	-78.96%	-88.79%
Revenue Growth (Y-O-Y)	20.23%	17.72%	7.96%	10.13%
Earnings Reaction	-4.47%*	24.28%	42.22%	-11.87%

Netflix has seen improving earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Netflix’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Netflix stock done relative to its peers, Amazon (NASDAQ:AMZN), Comcast (NASDAQ:CMCSA), Outerwall (NASDAQ:OUTR), and sector?

	Netflix	Amazon	Comcast	Outerwall	Sector
Year-to-Date Return	172.63%	20.60%	20.58%	21.57%	24.37%

Netflix has been a relative performance leader, year-to-date.

Conclusion

Netflix is a streaming services that provides video entertainment to consumers in the United States. A recent deal with Dreamworks Animation has the company buzzing, however, a recent earnings report does not. The stock has been on a euphoric rise in recent months and looks poised to continue. Over the last four quarters, investors in the company have had mixed feelings about recent earnings reports, although, earnings have been improving while revenue figures have been rising. Relative to its peers and sector, Netflix has been a year-to-date performance leader. Look for Netflix to continue to OUTPERFORM.