We're Seeing 2012 Netflix Again... But Only Halfway

Netflix (NFLX) shareholders breathed a sigh of relief last Wednesday... The stock jumped more than 7% that day. The big move higher happened after the video-streaming giant said it lost only 970,000 subscribers in the second quarter. [Chaikin PowerFeed]( We're Seeing 2012 Netflix Again... But Only Halfway By Marc Gerstein, director of research, Chaikin Analytics Netflix (NFLX) shareholders breathed a sigh of relief last Wednesday... The stock jumped more than 7% that day. The big move higher happened after the video-streaming giant said it lost only 970,000 subscribers in the second quarter. Now, in most cases, losing almost 1 million subscribers in a quarter would set off alarm bells. But in Netflix's case, investors saw it as good news... You see, Netflix previously expected to lose 2 million subscribers that quarter. And even better, management now expects to gain 1 million subscribers in the third quarter. That's a big improvement from three months ago... On April 20, Netflix's stock plunged 35% after the company said it lost 200,000 subscribers. That's because investors expected a gain of 2.5 million subscribers. So now, you might think all is well. It seems like the crisis is over for Netflix. If only it were that simple... Recommended Links: [The Most BULLETPROOF Investment on Earth]( Learn how you could compound your wealth by at least 20% per year for decades in a bulletproof investment – one that's TWICE as good as gold when it comes to beating inflation. Plus, you have the chance to see 1,000% upside in EACH of three specific U.S. stocks. [Click here to learn more](. [Stocks Could Crash on August 10 at 4 p.m. ET]( The number of Nasdaq stocks down 50% or more has now hit a near record. And on August 10, it could get worse – much worse. At 4 p.m. Eastern time that day, one of America's most beloved firms will make an announcement that could send it plummeting. And it could take down hundreds of other stocks with it. [The man who called the 2020 Crash is posting a new public warning here](. Folks who play Wall Street's "guidance game" should be happy. The company beat the latest set of expectations. So with that short-term mindset, things look good again. The guidance game does matter. We see it often enough anecdotally. And there's legitimate research behind it as well. After all, two of our Power Gauge system's 20 factors (earnings surprise and estimate trend) are products of the guidance game. But be careful. Investing involves a lot more than just playing the guidance game... That's why the other 18 Power Gauge factors are different. And folks who use their own judgment to pick stocks know how limited the guidance game can be. Today, I want to address one critical, non-guidance-game factor in the Power Gauge... I'm talking about the valuation ratio of "price to sales (P/S) including debt." It's one of my favorite Power Gauge factors... Unlike other valuation ratios, this one eliminates the need to consider fancy ways companies might account for expenses. It also allows us to evaluate money-losing companies and businesses with minimal profitability. With that in mind, let's next match the trend in the P/S ratio with Netflix's subscriber count. For each year in the chart below, ask yourself... Is Netflix's P/S ratio reasonable based on what I might expect for future subscriber growth? Don't torture yourself trying to be precise. We invest based on the future. We can't know for sure what will happen. So therefore, we need to follow the classic maxim, "It's better to be vaguely right than precisely wrong." In the spirit of this exercise, you can cheat a little bit. Assume the most recent growth rate represents the probable future. So with that said, here are the numbers... [Chaikin PowerFeed] I bet most of you could tolerate Netflix's low 2012 P/S ratio. And you'd probably say "maybe" for 2013 through 2016. The P/S ratios are higher, but that came with fabulous growth. Now, move down to 2017 through 2021. You'll likely feel less comfortable with these numbers... Again, don't obsess over precision. Just recognize the worsening connection between growth and value. Netflix's valuations have been climbing, but the company's growth has been slowing. That's a problem. And things look even more interesting so far this year... Subscriber growth has vanished. It's only at 0.86%. But at the same time, the company's P/S ratio is way down. It looks like 2012 again at roughly 3.2. So in other words... We're halfway to Netflix's glory days. But until growth returns, it's still just halfway. Maybe Netflix will revolutionize its business with new advertising-supported service tiers. We'll all need to wait and see. But for now, it's best to steer clear of this uncertain situation... The Power Gauge just flipped to "bearish" on Netflix this week. And as we've learned, focusing on stocks with clear "bullish" outlooks is the best way to succeed as an investor. For me, in 2022, I'd rather have the full Netflix from 2012 than half of it. Good investing, Marc Gerstein Market View Major Indexes and Notable Sectors # Hld: Bullish Neutral Bearish Dow 30 -0.74% 5 17 8 S&P 500 -1.12% 57 306 136 Nasdaq -1.96% 19 48 32 Small Caps -0.60% 350 1033 449 Bonds +0.08% — According to the Chaikin Power Bar, Large Cap stocks are more Bearish than Small Cap stocks. Major indexes are mixed. * * * * Top Movers Gainers [rating] MMM +5.00% [rating] GE +4.61% [rating] ADM +4.36% [rating] FISV +4.25% [rating] ARE +4.12% Losers [rating] FTNT -7.77% [rating] WMT -7.60% [rating] CCL -7.41% [rating] SIVB -6.69% [rating] RL -6.36% * * * * Earnings Report Reporting Today Rating Before Open After Close TMUS, HUM, LW BA, QCOM, PTC, GPC, GL WM, ADP, TDY, ROL, ODFL, KHC, GRMN, CME, BSX, BMY, AVY META, HES, MOH, ORLY, RE, RJF, URI, VICI, MAA, LRCX, HOLX, AEP, GD, EQIX, DRE, CTSH, CINF, CHRW, AWK, ALGN TEL, SHW, HLT, IVZ, NSC, ROK, OTIS AVB, TYL, NOW, NVR, ETSY, F, FBHS No earnings reporting today. Earnings Surprises [rating] GE General Electric Company Q2 $0.78 Beat by $0.36 [rating] AGR Avangrid, Inc. Q2 $0.46 Beat by $0.13 [rating] CSGP CoStar Group, Inc. Q2 $0.28 Beat by $0.07 [rating] ADM Archer-Daniels-Midland Company Q2 $2.15 Beat by $0.43 [rating] TXN Texas Instruments Incorporated Q2 $2.52 Beat by $0.37 * * * * Sector Tracker Sector movement over the last 5 days Utilities +2.15% Real Estate +1.56% Health Care +1.20% Industrials +1.11% Energy +1.06% Materials +0.60% Staples +0.55% Financial -0.40% Information Technology -0.71% Discretionary -0.82% Communication -4.22% * * * * Industry Focus Homebuilders Services 4 17 14 Over the past 6 months, the Homebuilders subsector (XHB) has underperformed the S&P 500 by -7.83%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #10 of 21 subsectors and has moved down 2 slots over the past week. Indicative Stocks [rating] JCI Johnson Controls Int [rating] MAS Masco Corporation [rating] FND Floor & Decor Holdin * * * * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, [click here](. You’re receiving this e-mail at {EMAIL}. For questions about your account or to speak with customer service, call [+1 (877) 697-6783 (U.S.)](tel:18776976783), 9 a.m. - 5 p.m. Eastern time or e-mail info@chaikinanalytics.com. Please note: The law prohibits us from giving personalized investment advice. © 2022 Chaikin Analytics, LLC. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Chaikin Analytics, LLC. 201 King Of Prussia Rd., Suite 650, Radnor, PA 19087. [www.chaikinanalytics.com.]( Any brokers mentioned constitute a partial list of available brokers and is for your information only. Chaikin Analytics, LLC, does not recommend or endorse any brokers, dealers, or investment advisors. Chaikin Analytics forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees of Chaikin Analytics, LLC (and affiliated companies) must wait 24 hours after an investment recommendation is published online – or 72 hours after a direct mail publication is sent – before acting on that recommendation. This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.