Five months ago, Netflix stock was trading at 52-week lows and the company couldn’t seem to get it right.
But the company won the markets’ favor back with its latest earnings report. A better-than-expected profit and revenue forecast and subscriber growth sent the stock up 73% over the next three days. The company added 2.05 million new users in the fourth quarter, bringing its total to 27.15 million subscribers. And it expects to add another 1.35 to 2 million subscribers this quarter.
The results were a surprise considering the company had warned investors a few months ago that it would post a loss for the quarter. But hidden behind that surprise is the fact that profits were still 80% lower than the fourth quarter one year ago.
The bottom line: a surprise in one quarter’s results does not make a case to buy a stock. And a stock skyrocketing 73% in three days is a red flag. That is really just a lot of over-enthusiasm. A buy was technically signaled a month ago, but recent action has left shares pretty over-bought, and that makes this look like more of a selling opportunity than a buying opportunity.