Netflix (NASDAQ:NFLX) shares have been on tear since just before the start of year, but after rising to $50 last month, traders have been selling, cashing in on an incredible ride. NFLX has gone from $18 to $50 since November 2008 and Friday shares closed at $40.22 -- is everyone including PC's Netflix sick?
We all love Netflix, their service of providing movies delivered by mail and streaming online is the best you can buy, hands down, and for XBOX LIVE users, its a slam dunk. But just because you love a company's product, you can't apply the same love to investing in the company when your money is at stake and at the mercy of day traders, hedge funds, etc. I'm sure you've already hard that before, its a great "I told you so" moment, but such is the fun of investing in 2009 -- timing is everything.
If you've been turning a blind eye to the bullish run on Netflix, take a cue from the current short interest thanks to shortsqueeze.com:
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That's right investors, there are big bets being placed that Netflix has enjoyed a great run, and now its time for the stock to fall -- 36% of the Float is Short. However the analysts covering Netflix have never been more optimistic, good for them, Citi just raised their target price from $37 to $52 -- really?:
| 27-Apr-09 | Upgrade | Citigroup | Hold → Buy | $37 → $52 |
| 24-Apr-09 | Reiterated | FBR Capital Markets | Mkt Perform | $28 → $38 |
It would appear Netflix could do no wrong, firing on all clyinders and everyone is buying it, analysts and all. Netflix, which has grown at a torrid pace over the past two years to crowd out rental chains like Blockbuster (BBI), now expects to end 2009 with 11.2 million to 11.8 million subscribers, up from a previous target of 10.6 million to 11.3 million.
"They're doing everything right, but the stock was priced for perfection and guidance wasn't raised by as much as the whisperers were hoping for," said Michael Pachter, an analyst at Wedbush Morgan Securities.
Netflix raised its earnings per share forecast last month for the year to a range of $1.56 to $1.72, from $1.43 to $1.59, go Netflix go!!
So why would the short interest be building?
It is what it is, this is a warning call to those Netflix shareholders that have banked some serious coin in the last few months. Chris Fernandez from PeakStocks.com noticed on Thursday (May 7th) Netflix shares dropped below their 50-day moving average on almost 2x the volume. More on what Fernandez said:
I haven’t officially tried to short yet, as 30% of the float is short, so I am unaware if it is hard to borrow the shares or not. Other indicators are also turning bearish for the stock, at least short term, and that is all we care about.
If it is, consider buying May puts for a short term move, perhaps June, but remember that this is a short term (1-3 weeks) play, and nothing more, as I believe in the management and prospects of Netflix overall, just not in such a heady way as we’ve seen lately.
As investors rotate out of these recession plays and look at more discretionary stocks where people are likely to migrate once the fear of losing a job and a down economy subside, stocks like Netflix that were strong on the way up, despite a down market, will be the first to fall. I believe that has already begun.
Strategy: Short 1/4 - 1/2 position now, more if stock rises over the next few days. Sell entire position if stock breaks $43.50 or so.
Not a bad idea and the Masters believe that Netflix is the future of movie distribution, they will continue to be a great company and investment, but traders are going after them.
Like it or not, believe it or not -- Netflix could fall thanks to short sellers. What if the company has to reduce their guidance, what if they don't hit their forecasted numbers? Cobra Commander and the short sellers want to cash in on Netflix falling, someone is always waiting to take your market share away after a bull run because winning is half the battle.
Chances are Netflix is a solid company and they will hit the 2009 guidance, beat the Street and everyone will be happy. But given that Bears prey on moments like this, NFLX could fall even more, and that's something to warrant caution. Long term, Netflix looks great, but short term -- I'm even getting Netflix sick.
Disclaimer: None of theStockMasters.com Staff has any NFLX positions.