Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Are Netflix, Inc. (NFLX) Shares Soaring?

Page 1 of 2

After surging more than 60% after earnings last month, shares of Netflix, Inc. (NASDAQ:NFLX) closed last week around $165. This week, shares have already gained an additional 12%, closing at $184.41 on Wednesday. What has caused this secondary rally?

NFLX Chart

Netflix Monthly Price Chart. Data by YCharts.

Unfortunately for shareholders, the main cause of this week’s rally has nothing to do with Netflix’s fundamentals. Instead, it has primarily been driven by speculation that Netflix, Inc. (NASDAQ:NFLX) will take Dell Inc. (NASDAQ:DELL)‘s spot in the Nasdaq-100 index. Traders are probably buying Netflix now to take advantage of future capital inflows from portfolio managers who track the Nasdaq-100.

Netflix, Inc. (NASDAQ:NFLX)Re-entering the Nasdaq-100
The Nasdaq-100 index is made up of the 100 largest non-financial companies listed on the Nasdaq exchange. It is one of the most popular indexes in the stock market, and is tracked by the PowerShares QQQ Trust, Series 1 (NASDAQ:QQQ). Netflix had been a member of the index until it was removed late last year. However, with Nasdaq-100 member Dell having announced this week that it will go private through a leveraged buyout, the exchange needs a new member for the Nasdaq-100 index.

In the two months since it was dropped from the index, Netflix’s stock has nearly doubled in value. That makes it currently the most valuable member of the Q50, a group of 50 stocks next eligible for inclusion in the Nasdaq-100. As a result, it is now the leading candidate to take Dell’s spot in the index. Traders, expecting future inflows to Netflix stock, have jumped in now to profit from the change.

Fundamentals have not improved
However, if we look at Netflix’s fundamentals, there is no reason for the stock to be logging significant gains this week. The company’s flagship original series, House of Cards, was released last week, but Sandvine (a company that monitors Internet data usage) stated on Monday that Netflix saw no measurable increase in traffic since the release. Netflix is relying on House of Cards to drive subscriber growth, and spent $100 million to produce two seasons of the show. Unless Sandvine failed to adjust for the dampening effect of the Super Bowl on Netflix usage, this data point is ominous.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!