Netflix Priced For Perfection And Running Into Resistance - A Time For Patience?

Netflix, Inc. NFLX has been on a torrid 50 percent run since making the lows in December and January at $315-$316. The company has crushed the bears with fundamental announcements galore. The question as the stock nears the 2014 highs -- does the company's management have more tricks up their collective sleeves that will send the bears reeling even further?

Let's take a quick look at Netflix's profile and technicals for some clues as to the future for Netflix shareholders.

What The Bulls See

• Very strong positive levered free cash flow of more than $3 billion annually.
• A decent balance sheet profile: Total cash of $1.61 billion versus total debt of only $929.6 million, a debt-to-equity ratio of only 50.04 and a percent current ratio of 1.48.
• Strong EPS growth estimates for the next year of 60 percent or higher.

Related Link: Should Netflix Be Afraid Of This Torrent Site?

What The Bears See

• Some very rich valuation metrics: A price-to-sales ratio of 5.28, a price-to-book ratio of 15.62, a P/E ratio of nearly 90 -- easily trumping the S&P's P/E of 22 and which even seems expensive versus estimated revenue growth of 21.6 percent for the next year.
• Net profit margins of only 4.85 percent, not leaving the company much room for error.

The Technical Take

Technicians note that Netflix has run right up to its 2014 highs, but has yet to set new highs unlike the broader NASDAQ marketplace. The chart below shows 2014 high resistance at $489.29 with uptrend channel resistance backing that up at around $519.

Technicians note that Netflix could easily pull back to one of the uptrend line supports at around $420-$422 and still be in good shape technically. They note the stock is definitely overbought.

Overall

With Netflix seemingly priced for perfection and with little room for error with its thin profit margins, investors may want to take only a partial position on the long side and wait for a pullback to support at $422 before taking a full position.