Screaming stock market continues upward…
I am of course referring to NFLX which rallied +18% on Thursday after posting a 5% increase in subscriber growth and beating earnings consensus by 50% with Q2 EPS of +$0.06 vs. +$0.04.
NFLX is now +93% since the beginning of Q2 and is +137% YTD.
Other stocks of a similar genre showed less spectacular but still impressive gains, with AMZN +3%, GOOG +3.5%, and EBAY +3.4%.
The price action in NFLX, and other names with exposure to video streaming was the driving force in NASDAQ +1.25% at 5163 closing at a fresh all time high, the only major market average to do so. Clearly, NFLX and GOOG have been leading the charge as the NASDAQ was rallied 5.5% in the last 5 trading days.
Is this a sustainable move that can built on for a “New leg higher”?? Of course only time will tell but both NFLX and GOOG are textbook affirmations of the most basic Rule #1 of investing…..”Buy what you Like”.
GOOG reported after the close with a beat on both revenue and EPS for Q2 as the stock rallied +10% in afterhours trading. In the last 6 trading days, GOOG has gone from a 5½ month low to a 10 month highs, with a 12% gain in just 6 days.
That doesn’t include the post earnings rally after hours that took the stock above $640 to multiyear highs, a 24% move from July 8. An astounding rebuke to the law of large numbers!!
We’ve been conditioned to treat sharp price moves in after hours trading with plenty of caution, and the staying power of GOOG to hold multi year highs of $625 level will get plenty of attention. It was just Wednesday that 8% gains post earnings from INTC evaporated by Thursday morning.
To be fair, INTC close with a +0.7% gain and is trying stem the tide in the much maligned chip space. At $29.90, INTC is still 6% below its 200 day MA.
While usually not in favor of outsized gains that can inspire manic market behavior, were not throwing a flag yet on NFLX and GOOG. GOOG has never been an “expensive” stock and there’s nothing to “Not to Like” about an industry leader breaking out of a multiyear trading range.
NFLX is trailblazing into the unknown and anyone who thinks they can “model” their revenue 3 to 5 years out, not to mention put a multiple on it, is just nuts. Consider where AMZN was 5 to 10 years ago.
Certainly some “backing and filling” or profit taking from time to time would be healthy for either stock, but Don’t Even go there with the China Syndrome analogy.
Both have seasoned management teams that have “survived and thrived” through periods of adversity.
GOOG signed up for self prescribed “adult supervision” when it brought on Eric Schmidt early in their ascendency, and NFLX had a “near death experience” with a bungled 2 tiered pricing plan that saw the stock lose 75% of its market value in less than 6 months.
There are likely companies on the margin that are only living off stretched valuations in the space, but the two market leaders are no House of Cards.
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