Here’s Why The Netflix Comeback May Be An Opportunity For Investors…

I was somewhat shocked when I saw this ticker come across my screen the other day.

When I was screening for stocks with momentum over at my premium service, Maximum Profit, I wasn’t expecting to see this one.

Not only was it from an industry that hasn’t seen a lot of momentum — technology/communication services — but it’s a company that needs little introduction.

I’m talking about Netflix (Nasdaq: NFLX).

It seems this well-known stock is showing new signs of life. And if you’re looking for good ideas in this market, it would be wise to pay attention.

Is Netflix Making A Comeback?

As we all know by now, Netflix pioneered the “cut-the-cord” trend. As a result, it upended the traditional cable and satellite business models.

Some estimates show that cable providers have lost roughly 25 million subscribers since 2012. Meanwhile, streaming service revenues (like Netflix) increased by 340% from 2015 to 2020.

In fact, Netflix’s revenue alone has soared 338% from 2015 through 2021, going from nearly $6.8 billion in 2015 to roughly $29.7 billion last year. Netflix received a major boost during Covid-19 lockdowns as folks were stuck at home and binge-watching their favorite shows. Shares soared over 170% from their March 2020 bottom to their peak in November 2021.

Unfortunately, like many Covid-darlings, Netflix was hit hard as things began to return to normal. The Covid-hangover was especially brutal for Netflix, as the user and revenue growth came to a screeching halt.

Shares collapsed over 76% this year. NFLX went from being a $300 billion-plus company to a $134 billion company.

But the company is showing signs of life… it began to pick up steam when the company announced plans to introduce a cheaper ad-supported subscription tier, which has been well-received by Wall Street.

Then in its most recent earnings call on October 18, the company added 2.4 million subscribers in the September quarter. That was more than double what the company guided for in its first quarter earnings call. Wall Street penciled in subscriber growth at 1 million. Netflix management also forecasted that it could add 4.5 million subscribers for the current quarter, about half a million more than the Street estimated.

Shares surged double-digits on the company’s latest results and guidance.

The stock’s momentum has started to pick up steam. As a quick reminder for those who know that I’m a firm believer in momentum investing, remember that I specifically look at a stock’s relative strength over the last six months. So, even though shares of Netflix are a long way off from their November 2021 high, shares have started to gain momentum in the last six months.

Of course, momentum is only one part of the equation. There has to be something behind it. In order for me to consider a stock as a worthwhile trade candidate, there has to be actual momentum in the company’s operations, too.

That’s why I like to look at cash flow. And Netflix has started to shore that up, too.

Netflix was once on a spending splurge as it spent gobs of money to produce new content. But it seems management has changed course. In the latest quarter, cash flow came in at $556.8 million, a stark contrast to the $82.4 million it made in the same period last year. Through the first nine months of this year, the company has generated nearly $1.6 billion in cash flow, roughly double what it produced over the same period in 2021.

What The Chart Shows…

From a technical standpoint, the chart looks good. After jumping in July, shares formed a nice base before breaking out after the company’s latest earnings call.

What I particularly like is that the stock gapped higher after announcing earnings on strong volume. Technical analysts like to see that kind of thing. Historically, this represents further upside potential as investors jump back onto the Netflix bandwagon.

If the company misses subscriber growth numbers, that will surely dampen the stock’s momentum. Also, if the company’s rollout of its cheaper ad-streaming service doesn’t find success, investors might lose patience and abandon ship.

Just like it pioneered the cord-cutting revolution, Netflix is looking to pave the trail with the next evolution in streaming: cheaper ad-supported subscription tiers. Only time will tell if it will work. But at this point, it looks like Netflix just might pull this off.

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