As Netflix dips below its 200-day moving average, Josh Brown says to buy shares here

Netflix shares recently declined 8% this week, dropping below their 200-day moving average following a third-quarter earnings miss and revenue that only met expectations. Despite this downturn, Josh Brown of Ritholtz Wealth Management and Paul Meeks of Freedom Capital Markets advocate buying the stock, viewing the technical breach as a strategic entry point given Netflix's long-term growth potential from its content slate and advertising profits. Historical data further supports this bullish outlook, indicating that similar dips below the 200-DMA have historically preceded average forward returns of 17% over six months and 25% over twelve months.

Analysis

Netflix (NFLX) shares experienced an 8% weekly decline, including a 10% drop on Wednesday, following a third-quarter earnings miss against analyst estimates and revenue that only matched expectations. This downturn pushed the stock to an intraday low of $1,100.15, notably below its 200-day moving average of $1,115.43, a key technical indicator. This marks a significant technical breach, as the stock had been above this average for an extended period.

Despite the recent underperformance, prominent analysts like Josh Brown of Ritholtz Wealth Management and Paul Meeks of Freedom Capital Markets are advocating for accumulation, viewing the dip below the 200-DMA as a strategic buying opportunity. Brown, who has personally increased his NFLX position, maintains a bullish long-term outlook, citing Netflix's strong content slate and growing advertising profits as significant catalysts.

Historical analysis supports this contrarian view, indicating that in seven prior instances over the last 12 years where NFLX closed below its 200-DMA after an extended period above it, the stock demonstrated positive forward returns in five out of seven cases over six months and four out of seven over twelve months. The average forward return following such dips has been approximately 17% over six months and 25% over twelve months, suggesting a potential pattern for recovery.

Key Decisions for Investors

• Consider the recent technical breach below the 200-day moving average as a potential accumulation point, aligning with historical patterns of positive forward returns.
• Evaluate Netflix's long-term fundamental strengths, such as its content pipeline and growing advertising revenue, which analysts highlight as key drivers for future growth.
• Monitor future earnings reports and subscriber growth metrics to validate the bullish long-term thesis, particularly given the recent earnings miss.