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What Netflix’s 3.9% Bounceback on June 26 Suggests

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Aug. 18 2020, Updated 9:33 a.m. ET

Netflix stock bounced back on June 26

Netflix (NFLX) stock fell 6.5% on June 25, as tech stocks crumbled after signs that the US–China trade war could intensify. The tech-rich NASDAQ Composite Index fell 2.1% on June 25, as investors were rattled by this trend. Netflix has run up quite a bit this year, returning 100.0% YTD (year-to-date), leading to profit-taking by investors on the day.

However, Netflix was among the top-performing tech stocks on June 26. The stock surged by 3.9%, while the NASDAQ Composite Index rose just 0.4%. This suggests that despite rich valuations, investors are still willing to buy Netflix on dips amid a general risk-off environment. This trend suggests that Netflix has additional headroom.

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Optimism and Netflix stock

At its current valuation, Netflix (NFLX) stock appears pricey and much of the optimism surrounding the company is already reflected in its price. As long as Netflix can keep up with its current revenue growth and—more importantly—its user base growth, its stock price is expected to improve.

The streaming giant is slated to announce its second-quarter numbers in mid-July. Its stock surged after the announcement of the previous three quarterly results, which beat Wall Street estimates. If the company doesn’t continue to follow that trend, the stock could be on the receiving end of a knee-jerk reaction. Also, Netflix’s mounting debt could negatively affect the company’s cash flow in the coming years.

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