Smart Money Bearish on NFLX Stock
The best growth story of 2015, Netflix, Inc. (NASDAQ:NFLX) is turning out to be a major disappointment in 2016. Three indicators now suggest that Wall Street might be turning its back on NFLX stock.
Netflix stock has shed nearly 22% of its gains since the beginning of this year. While the bulls are putting the onus on the market correction, the bears are quietly joining hands against Netflix.
NASDAQ just released the latest data on short interest and the numbers are looking grim for NFLX stock. The short interest has spiked another two percent in the last 15 days. The total increase in short interest in the last one month is now a good 10.5%.
With more than 53 million of its shares short, this takes the short interest to about 13% of the total stock afloat. The most alarming part, however, is that this is the highest number of shares shorted by bears at any given time in the last year. (Source: “Netflix, Inc. Short Interest,” NASDAQ, February 9, 2016.)
Stay put; this is just the beginning of the story.
If you look at Netflix’s insider trades data at NASDAQ, the numbers are even more terrifying. A whopping 95% of the total insider activity in the last three months and the last year has been the sale of NFLX stock. Putting it in other words, insiders have been dumping the stock.
It’s true that Netflix’s insider holdings make up less than two percent of the total outstanding stock, which means they have little effect on market price. But let’s not forget that insider trades are a good barometer of a company’s health. After all, who knows the company better than the insiders? And if they are showing a lack of faith, it should certainly be cause for concern.
Worse yet; institutional ownership of Netflix stock is a massive 81%. One thing about high institutional stakes is that large blocks of stock are bought and sold in a flash. Unlike retail trades, institutional trades can easily swing prices because of the sheer size of the trade.
Institutional trading data shows that more of these investors have increased their stakes in the stock. Yet, the total number of shares sold is nearly double the number bought.
The above three indicators—shares shorted, insider trades, and institutional ownership—should ring the alarm bells for investors, as all three indicate a strong bearish sentiment setting in for NFLX stock.