Three red flags for Netflix ahead of its earnings report 

Netflix is scheduled to report earnings after the bell on Monday, but as much as the stock has surged this year, technician Craig Johnson of Piper Jaffray is warning investors against the streaming giant ahead of the event.

“There’s a 9 percent implied volatility move coming into the quarter here,” he said Friday on the “Trading Nation” segment of CNBC’s “Power Lunch.” “From my perspective, I’m not committing fresh money with a stock this far extended above its 50- and 200-day moving average and even the longer-term uptrend support line.”

In other words, Johnson believes that Netflix is overbought and wants to wait for a pullback before buying the stock, which has soared about 107 percent this year.

As of Monday morning, the stock had fallen 5 percent in just the past week leading into earnings. Michael Binger, a senior portfolio manager at Gradient Investments, is also warning investors against buying the stock at these levels for two reasons. Firstly because of its “astronomical valuations” – the company sports a P/E of 266 times earnings – and secondly because he believes the company’s original content is starting to become a weak spot.

“They’re going to continue to spend on original content, that’s going to make that negative cash flow continue to mount,” he said on “Trading Nation. “And finally, we think that the newer original content isn’t getting [as many] accolades as past previous content.”

This could prove particularly worrisome for Netflix, as the streaming giant’s original content has been seen as one of its biggest strengths. On that note, Binger also mentions that there are reports that viewing hours on Netflix are starting to dwindle, leading him to believe that competitors Hulu and Amazon Prime may be taking viewers away from the streaming platform.

Netflix was trading at around $397 midday Monday ahead of earnings.

Disclosure: Neither Michael Binger nor Gradient Investments have any positions in NFLX and AMZN.

Disclosure: Comcast, which owns CNBC parent NBCUniversal, is a co-owner of Hulu.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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