Netflix, Inc. (NFLX): Why I’m So Bearish On The Stock

Recent declines in the stock suggest the market is just starting to catch on to the reality of the company’s situation, but I would emphasize the phrase “just starting.” The stock still has much farther to fall. The company provides a great service at a reasonable price, but investors need look no further than 2011’s Qwikster spin-off and subscriber exodus to see what kind of effect price hikes have on Netflix’s business.

Netflix shares dropped 20% in March alone. It’s time for investors to get out while they still can. When this stock still had positive momentum investors might have overlooked its flaws, but now that the momentum is gone NFLX represents an attractive short opportunity.

Insiders Selling

Although NFLX has had quite the run-up in the past year, executives have apparently decided that it’s time to get off the train – and quickly. In the past six months, insiders have sold off over one million shares, or 45% of their holdings. If this level of dumping does not serve as a warning to investors, I am not sure what will.

Stay Away from Funds that hold NFLX

Investors should stay clear of the following ETFs and mutual funds, as they allocate heavily to NFLX and earn my Dangerous or Very Dangerous rating:

1. NASDAQ Internet Portfolio (PNQI): 4.3% allocation and a Dangerous rating.

2. Hennessy Technology Fund (HTECX): 4.1% allocation and a Dangerous rating.

3. DJ Internet Index Fund (FDN): 4.0% allocation and a Dangerous rating.

André Rouillard contributed to this report.

Disclosure: David Trainer is short NFLX.  David Trainer and André Rouillard receive no compensation to write about any specific stock, sector, or theme.

This article is brought to you courtesy of David Trainer from New Constructs.

Pages: 1 2 3

Leave a Reply

Your email address will not be published. Required fields are marked *