Netflix’s international expansion efforts continue to garner rave reviews from analysts. Wall Street keeps boosting price targets for the streaming TV provider higher and higher thanks to those efforts. In fact, analysts seem to be competing to see who can slap the highest price target on Netflix.
Oppenheimer on top… for now
Analysts at Oppenheimer increased their price target for Netflix from $610 to a whopping $800 per share based on the company’s “aggressive” expansion into nations around the world. The company has announced launches in five more countries since analyst Jason Helfstein last updated his model. The analyst maintained his Outperform rating on Netflix, and his $800 price target is the highest on Wall Street.
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By the end of this year, he expects Netflix’s first five markets, the U.S., the U.K., Canada and Brazil, to have a 30% penetration rate of broadband households. By 2020, he expects Netflix to 239 million global subscribers, which would represent a 32% penetration rate of broadband households.
Helfstein noted that there are already signs of interest in Netflix’s two newest markets of New Zealand and Australia. Data from Google Trends suggests interest in those two areas.
Will Netflix keep climbing?
But some interesting technical data pointed out by Investor’s Business Daily suggests that Netflix stock may not reach Helstein’s ultra-bullish price target. Andrew Edwards explained how the continued rise in the company’s shares could be a warning sign that they’re about to recede.
He said the key is to compare the stock’s share price with its daily volume. If a stock starts setting new highs with a low volume, as Netflix has recently been doing, it’s a warning sign that suggests institutional investors are starting to tire of the stock. And what happens next is often a dive.
Why Netflix may reverse course
Edwards then looked at the activity of Netflix’s stock a few years ago. Between August 2010 and February 2011, demand for Netflix shares was high, and they doubled, pushing Netflix stock up to new highs in above-average weekly volume a total of seven times, noted Edwards.
As the share price continued to rise, demand started to fall, however. At the end of January 2011, Netflix hit a new high with a weekly volume of almost 43 million shares. By July, however, demand fell to 20 million shares for the week of July 8.
The problem here is that high volume helps to boost a stock price, and when demand for a stock falls, there’s nothing to support the increased price, according to Edwards. He noted that the week after July 8, 2011, there was a “high-volume reversal” which ended Netflix’s “historic run.” A couple of weeks later, Netflix shares broke under their 10-week moving average and kept tumbling.
So should investors be worried about Netflix stock right now? From Edwards’ explanation, it’s certainly a good idea to keep an eye on volume. It should be noted that Netflix’s volume moving average has declined significantly from early 2014 when it spiked and now continues to slip. For now anyway, volume remains high enough to support the current share price and push it to new highs, but how long this will last is anyone’s guess.