Gains are Still Possible in Its New Era – TipRanks Financial Blog
Netflix (NASDAQ:NFLX) stock suffered a massive beatdown recently as the appetite for streaming stocks took a turn lower. As the company enters its new era — without top boss Reed Hastings in the co-CEO seat and in the midst of a rapidly-maturing streaming industry — there are definite challenges that warrant Netflix stock’s valuation reset. Still, the company has growth levers it can pull, not only to pull ahead of the pack but expand its circle of competence to encompass markets many of its FAANG rivals are pushing into. Therefore, I remain cautiously bullish on Netflix stock.
Though I am confident in NFLX’s longer-term growth prospects, I don’t view the firm as timely. It could take years for the company to regain the hearts of growth investors. Even if Netflix succeeds in new markets (think video gaming), the drag of high interest rates could weigh on the stock’s multiple for longer. As such, I believe that only patient long-term investors will benefit from growth in Netflix’s new era. It’ll be a less-rewarding era, but one that could still help power impressive gains.
Netflix Stock Draws Another Line in the Sand
Since bottoming out last summer, Netflix stock has been on an impressive run. From the May 2022 bottom to the January 2023 peak, the stock surged more than 121%. More recently, the stock took a dive alongside most other tech stocks in February. At writing, Netflix shares are down about 20% from their 2023 peak. As the stock attempts to draw a new line in the sand in the low-30-times-trailing-earnings range, I do think it’s quickly becoming worth another look.
Sure, 30.5 times trailing price-to-earnings (P/E) is still a hefty multiple to pay for a growth stock. However, Netflix is an entertainment staple for many people, which can help the stock support a higher multiple.
For now, NFLX’s growth has seemingly evaporated, thanks in part to macro headwinds that have weighed heavily for a few quarters now. In any case, I think it’s easy to dismiss Netflix and its ability to continue to release high-quality content that engages viewers.
Even with the growing numbers of competing streamers, it’s still tough to cancel a Netflix subscription! There’s always something interesting that seems to keep many consumers coming back. For that reason, Netflix appears to be more deserving of its now palatable 30-35 times P/E range.
Netflix’s Resilience in a Recession Could Impress
Netflix has already felt headwinds for quite some time. However, I do think last year’s sell-off has lowered expectations to the floor. A recession may not be as horrific as many expect for Netflix. As consumer budgets get pinched, the ad-supported version of the streaming platform must be considered.
The lower-cost, ad-supported tier could help Netflix sail smoothly through a recession. Even with the price increases and upsetting “freeloader crackdown,” it’s clear that Netflix provides a whole lot of value for the price paid. On a price-per-hour basis, it’s tough to argue that Netflix offers one of the better value propositions out there.
As the streaming pioneer continues conducting business as usual, I don’t think it’s far-fetched to view Netflix at the bottom of the list of streaming services to cut when times get tough. While only time will tell how Netflix fares once the recession finally moves through the economy, I don’t think things will be nearly as bad as they seem.
However you categorize Netflix — consumer staple, discretionary, or fallen growth play — it has staying power, and there’s still plenty of profit to be had in its lower-growth, less-exciting era.
Is NFLX Stock a Buy, According to Analysts?
Turning to Wall Street, NFLX stock comes in as a Moderate Buy. Out of 35 analyst ratings, there are 17 Buys, 16 Holds, and two Sells.
The average Netflix stock price target is $356.20, implying upside potential of 17.2%. Analyst price targets range from a low of $230.00 per share to a high of $440.00 per share.
The Bottom Line on Netflix Stock
Streaming isn’t exciting anymore, and the biggest growth days are likely over, even as Netflix moves into new industries. Regardless, I view Netflix as more of a higher-growth consumer staple stock rather than a fallen tech titan. If you get in at a good price and are patient, impressive gains are still possible, even without Hastings at the helm.
Doubt the streaming pioneer, if you will, but I still think it’s a wonderful company for the value crowd, and the Street-high price target of $440 implies around 45% upside potential from here.