Streaming leader Netflix has been the standard bearer in the streaming world. While many companies have struggled to get their streaming services off the ground, this first-mover and pure play streamer has excelled.
Netflix has been one of the most consistent and best-performing stocks out there over the years. Throughout the past 10 years, it has had one negative year, the 2022 bear market, and every other year has seen double-digit returns, except 2016 when it was just up 8%.
This year, a sluggish one for many tech stocks, is no exception. Netflix stock is up about 38% year-to-date and 90% over the past 12 months. Further, it has average annualized returns of 87% over the past 3 years, 17% over the past 5 years, and 29% over the past 10 years. Those numbers stack up well against just about any other stock.
That type of success has raised the stock's valuation as it is trading at 59 times earnings, well above the Nasdaq average and up from about 44 a year ago. That may be why many analysts have been cautious on Netflix. It has a median price target of $1,220 per share, which would be about 1.7% lower than its current price.
It is not due to its lack of growth, as Netflix grew revenue 12% in the first quarter and boosted earnings 25% to $6.61 per share. For the full fiscal year it anticipates 13% revenue growth. The bigger concern is its high valuation and whether it is sustainable.
Some of Wall Street's leading analysts believe that Netflix's growth will continue to fuel its stock price.
In the past week, Netflix stock got three triple-digit price target upgrades. Needham raised its target to $1,500, from the previous target of $1,226. KeyBanc boosted its target by $320 to $1,390 per share, while Piper Sandler raised it by $250 to $1,400 per share.
These price target raises suggest that Netflix stock will jump 13% to 21% over the next 12 months.
Needham raised its revenue targets for Netflix due to its global scale, bundling capabilities, and anticipated advertising revenue growth. Needham analyst Laura Martin also cited its robust and growing free cash flow, which will allow it to repurchase shares and put a floor under its share price.
"NFLX reported the 3rd highest FCF per FTE for FY24, at $494,416. The average FCF per FTE in FY24 for the big-cap companies we cover was approximately $300,000. By implication, NFLX was about 65% more productive than the average in FY24, based on FCF/FTE," Needham analysts wrote in a research note, per Seeking Alpha.
Needham also cited Netflix's excellent labor productivity. The research firm said Netflix had the highest revenue per full time among the content creators it covers, including Apple (NASDAQ:AAPL), Meta (NASDAQ:META), and Alphabet (NASDAQ:GOOGL).
Also, analysts at KeyBanc said the combination of live events, price increases, and greater ad revenue should support low double digit revenue growth and about $40 in earnings per share by 2027, according to the Fly. That would be about double what its EPS was at the end of 2024.
Netflix stock is slightly overvalued, but the company has been such a strong performer over the years, it is hard to bet against it. And its outlook certainly suggests that its growth will continue. I might look for a dip to jump in, but overall, this is a great long-term stock.