Short Position in NFLX After Earnings Miss
I'll be the first to admit that I've been bearish on NFLX for a long time. Long enough to see my short opinion be ripped to shreds as NFLX share price climbed higher and higher. For those that have followed my ideas on US Equities, you know that I am not a fan of highly leveraged balance sheets. Well, NFLX is no exception. NFLX Cash to Debt Ratio is 0.52, and their Equity to Asset is 0.20. Taking a look at Free Cash Flow per Share, NFLX came in at -$3.96, almost double the decrease since last year.
Because of this, I wanted to wait to see what their earnings report looked like. After all, with companies like NFLX and TSLA, I learned the hard way that it doesn't really matter how the balance sheet looks, as long as the company is meeting expectations and delivering on promises. I mean, NFLX is trading at almost 200 times earnings. 200 times. No company is worth 200 times earnings.
Looking at the weekly chart (once again, I'm trying to develop the habit at looking at weeklys to give myself a better look at the more powerful movements), NFLX appears to be overreached. Now of course they could scream even higher, pushing 250 times earnings, but I don't think so. Earnings came out and NFLX didn't quite meet expectations of Wall Street. NFLX missed on their International Subscribers, which is what I was looking for as a bearish signal.
Regardless, in my Paper Trading account, I shorted NFLX at 143.21 with a stop loss at $149 and an initial profit taking point of $120. This presents a Risk Reward ratio of about 7.71:1. I risked 1% of my capital.
All the best,
RC
Because of this, I wanted to wait to see what their earnings report looked like. After all, with companies like NFLX and TSLA, I learned the hard way that it doesn't really matter how the balance sheet looks, as long as the company is meeting expectations and delivering on promises. I mean, NFLX is trading at almost 200 times earnings. 200 times. No company is worth 200 times earnings.
Looking at the weekly chart (once again, I'm trying to develop the habit at looking at weeklys to give myself a better look at the more powerful movements), NFLX appears to be overreached. Now of course they could scream even higher, pushing 250 times earnings, but I don't think so. Earnings came out and NFLX didn't quite meet expectations of Wall Street. NFLX missed on their International Subscribers, which is what I was looking for as a bearish signal.
Regardless, in my Paper Trading account, I shorted NFLX at 143.21 with a stop loss at $149 and an initial profit taking point of $120. This presents a Risk Reward ratio of about 7.71:1. I risked 1% of my capital.
All the best,
RC
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