The U.S. reported this Wednesday that consumer prices rose sharply in April and drove the rate of inflation to the highest level in nearly 13 years. The U.S. stock market remains under pressure, the Nasdaq Composite (COMP) has weakened by more than 2%, and this situation also negatively influences Netflix shares.
Fundamental analysis: Netflix shares are not undervalued despite the current correction
Netflix shares have weakened from $539 below $480 since the beginning of January 2021, and the current price stands around $485. The U.S. reported that inflation rose to the highest level in nearly 13 years and investors continue to sell stocks amid concerns about the rising inflation.
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The U.S. annual Consumer Price Index hit 4.2% in April (3.6% was expected) while the core reading jumped to 3%, also surpassing expectations. The U.S. Treasury Secretary Janet Yellen said recently that the FED might need to hike the interest rate soon, inflation has risen sharply, and it’s going to stay high for a while.
“There is uncertainty over how long inflation is going to exist within the current economic recovery because we can see increases in housing prices, commodities around the world, and increase in demand for goods and services. The uncertainty over the path of rates and inflation is making investors reconsider their portfolios, especially in technology stocks and others that had done really well last year,” said Brian Vendig, president, MJP Wealth Advisors in Westport, Connecticut.
Netflix trades at more than fifty times 2020 EBITDA, the book value per share is less than $30, and the company does not pay a dividend. If we compare the total stockholders’ equity of $12.8 billion and the market capitalization of $215 billion, we can notice that this stock is not undervalued, and the current risk/reward ratio is not good enough for “value” investors.
Netflix shares remain under pressure, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels.
Technical analysis: $450 represents a strong support level
Netflix shares have weakened more than 12% in the last thirty days, and according to technical analysis, the price could fall even more in the upcoming weeks. The U.S. stock market could fall even more this month, which could add further pressure on Netflix shares.
If the price falls below $450 support, it would be a firm “sell” signal, and the next target could be around $400. On the other side, if the price jumps above $550 resistance, it would be a signal to trade Netflix shares, and the next target could be around $600.
The U.S. stock market is losing some ground this Wednesday, which also negatively influences Netflix shares. The current risk/reward ratio is not good enough for “value” investors, and if the price falls below $450 support, the next target could be around $400.