eyeQ: is it worth watching Netflix shares?
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. This is what it tells us about this tech stock.
21st August 2024 10:13
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Netflix
Trading signal: long-term strategic model
Model value:$691.89
Fair Value Gap: +0.95% premium to model value
Model relevance: 59%
Before we had the Magnificent Seven, the FAANGs - Facebook, Apple, Amazon, Netflix, Google - were the tech giants that dominated financial markets.
Aside from the name changes (Facebook to Meta Platforms Inc Class A (NASDAQ:META), and Google to Alphabet Inc Class A (NASDAQ:GOOGL)), the standout from that old list is that 1) NVIDIA Corp (NASDAQ:NVDA) wasn’t in the top tier; and 2) no one talks about Netflix anymore.
The latter may be about to change with Netflix Inc (NASDAQ:NFLX) just hitting a new all-time high.
The stock fell out of favour in dramatic fashion a few years ago – it crashed 76% early in 2022. To be fair, equity markets were falling hard generally at that time thanks to the Federal Reserve hiking rates to fight inflation. But Netflix was hit especially hard for a variety of company-specific reasons.
However, last month’s earnings report suggested a lot of those fears have been addressed. Subscriptions have increased after a password-sharing crackdown, there’s optimism that Netflix can earn big revenues through advertising, their content pipeline has been strong, and they’re aligning that with new investments in video games – a Squid Game video game will be rolled out later this year to coincide with the second season of that series.
That’s the bottom-up view, but what’s the macro perspective?
Earlier in the week, eyeQ model value also hit a new high at $693.44. Meta is the only other big tech stock where eyeQ model value has made new highs recently. Even the mighty Nvidia hasn’t quite got back to the previous highs recorded in July.
There’s no valuation edge right now – the stock trades bang in line with where macro conditions say it should be. What’s key currently is watching the orange line – that captures macro momentum, i.e. whether macro conditions are helping or hindering the stock price. Right now, the trend is up!
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
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