Netflix Faces Downtrend But Analysts Predict Potential Rebound

Netflix (NFLX) has shown a noticeable downtrend recently, as selling pressures have mounted. The stock has decreased by 15.7% over the last four weeks. However, its current oversold status, coupled with strong consensus among Wall Street analysts regarding its earnings potential, suggests that a rebound could be on the horizon.

Identifying Oversold Stocks Using RSI

To determine if a stock is oversold, investors often turn to the Relative Strength Index (RSI). This widely-used technical indicator assesses the rate of price movements, acting as a momentum oscillator.

The RSI ranges from zero to 100, with stocks generally considered oversold when their RSI falls below 30. It’s essential to understand that all stocks oscillate between overbought and oversold conditions, regardless of their fundamental value. This characteristic makes the RSI a quick and effective tool for identifying potential price reversals.

When a stock is undervalued due to excessive selling, investors might start looking for buying opportunities, anticipating a market correction back toward fair value. However, it’s important to recognize the limitations of the RSI as an investing tool; it should not be the sole criterion for investment decisions.

Reasons NFLX May Experience a Recovery

The RSI for Netflix currently stands at 28.98, indicating that the ongoing selling may soon be exhausted, setting the stage for a price recovery as supply and demand reach a new equilibrium.

Beyond technical indicators, fundamental analysis also supports a potential rebound for the stock. Recent trends show strong agreement among sell-side analysts, who have raised their earnings estimates for the current year, resulting in a consensus EPS estimate increase of 0% over the past month. Typically, an uptick in earnings estimate revisions indicates future price appreciation.

Currently, NFLX holds a Zacks Rank #2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on patterns in earnings estimate revisions and EPS surprises. This rank provides further evidence of the stock’s potential for a turnaround in the near term. For a complete list of Zacks Rank #1 (Strong Buy) stocks, click here.

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Netflix, Inc. (NFLX): Free Stock Analysis Report

This article was first published on Zacks Investment Research (zacks.com).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.