Netflix (NASDAQ: NFLX) has been a hot stock in times of late, but even with their new 4k streams, shares of the streaming digital entertainment company are probably not an ideal buy at the moment. Investors would be well-advised to use caution before jumping into this one.
The company has had plenty of momentum in 2014. During the first three months, it shot up over 100 points from levels near $350 up to $450. During the latter half of March, however, the stock price went back down sharply. It currently sits at $348.89. This up and down activity should leave investors puzzled about the future, but there are solid reasons to doubt that the share price will climb back up right away.
The NASDAQ has been dropping since Friday, but seems to have stabilized today at 4,112.99. Analysts know that momentum stocks are in the middle of high volume sell-offs, and Netflix is currently smack dab in the middle of it. Nobody is sure why momentum stocks are seeing this sell-off action, but it is happening across the board for these types of stocks.
The company has been a staple of steady gains for investors in years past, but it may have hit a peak. In the past, the stock dropped hundreds of points during the latter half of 2011, down to $63.85, and it may be due to sink again. Even with their new 4k streams coming out, Netflix shares are not exactly an ideal buy right now.
After periods of momentum, people want to cash out on their gains. It may be time to take the money out of NFLX and run.
The 4k streams from the company require massive bandwidth. In the United States, the average bandwidth speed for internet users is 7.4 Mbps. 4k streams from Netflix require over 15 Mbps. On top of this, the streams do not even seem to work with many televisions made in 2013. So far, reviews say that regular HDTV streams look just as good. Some are touting the new 4k streams as cutting edge, but they just seem completely impractical.
The biggest thing that the streaming media company has going for it, in terms of share price, is fanatical devotion. Investors are just as likely to be fanboys of the company as they are to be staunch supports of its business financials. As such, the company has seen intense gains and heavy momentum in the past. Nothing lasts forever, though.
While investors are quickly pulling their money out of momentum stocks right now, some are suggesting that value stocks may be the next big thing on the street. That seems like too simple of a transition, and such a transition would probably just create new momentum stocks. No, investors have definite reasons. The high volume sell-offs on Wall Street are just a sign for the times that nothing lasts forever.
What goes up may also come down. What goes into the market can just as easily come out of it. Investors should ask themselves whether it is time for this company to see a change in price direction, or at least a leveling out.
Oppenheimer Analyst Jason Helfstein pegs the future price of Netflix at $419. He claims that the sell-offs are due to announcements that Amazon might provide a free streaming service with Fire TV. He could very well have a good point.
The sell-offs are not relegated to tried and true stocks like NFLX. The healthcare and technology sectors have seen huge beatings recently. Technology did have a good day today, though, rising higher than any other sector at 1.17 percent. All things considered, investors should use caution. The NASDAQ looks as though it could decline further. 4k streaming technology does not look promising yet, and the unstable market makes shares of Netflix not at all an ideal buy at the moment. Investors should wait out this period right now before assuming that the company can continue its proud march upward on the charts.
Opinion by Luke Sargent