Netflix: Great Company, Fairly Valued Stock

Red-hot tech stocks fell off a cliff this month, and Netflix (NFLX) stock was no exception -- the stock tumbled nearly 13%. Nevertheless, 2020 so far has been bountiful enough for a stock boosted by the coronavirus tailwinds, with shares up by 49% year-to-date.  

So, can Netflix resume the accumulation of share gains? Or has momentum run its course for now?

According to Raymond James' Andrew Marok, there is currently “limited potential for positive revisions and multiple expansion until more certainty is gained around the post-COVID-19 trajectory.” In other words, the analyst believes NFLX is trading at a lofty valuation and, as such, rates the stock a Market Perform (i.e. Hold). (To watch Marok’s track record, click here)

The analyst has no doubt Netflix is a great company and said, “We are positive on NFLX’s positioning within the large and growing video-on-demand space, given 1) its position as the dominant global video-on-demand player; 2) competitive advantages in content development and distribution; and 3) improving financial position with expanding operating margins and decreasing FCF deficits/reliance on external financing. We continue to view NFLX as a long-term winner in the expanding video-on-demand space.”

Additionally, the analyst doesn’t count the recent entry of other heavyweights such as Apple TV+, Disney+, HBO Max, and Peacock into the streaming arena as necessarily a threat. The analyst sees room for “multiple winners in the space as the pie grows.”

That said, as some consumers will look out for particular content only available on other platforms, Marok expects there is “likely to be some subscriber impact at the margin.” Furthermore, as the new players are priced to take share, there could also be a “limit on near-term pricing power in developed markets.”

Moreover, the last several years have taken their toll on the company’s FCF (free cash flow) as the heavy investment in content has resulted in FCF deficits. With the long term in mind, however, Marok expects the “company's growth will begin to overtake the growth in content investment, with Netflix reaching FCF breakeven in 2024E.”

Among Marok’s colleagues, the tone is slightly more bullish. NFLX's Moderate Buy consensus rating is based on 20 Buys, 10 Holds and 5 Sells. Meanwhile, an 8% upside could be in the cards, should the $520.43 average price target be met over the next months. (See Netflix stock-price forecast on TipRanks)

To find good ideas for tech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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