Netflix stock rose 7.5% in June
Online streaming heavyweight Netflix (NFLX) gained ~7.5% last month to close at $367.32. The stock has now gained ~40.0% this year. Wolfe Research initiated coverage on Netflix last month with an “outperform” rating and a 12-month price target of $442. The company expects Netflix to dominate the streaming space due to its content and pricing power.
Huge market opportunity
Netflix is set to benefit from the cord-cutting phenomenon gaining traction. The company has over 150 million subscribers worldwide, and its streaming services are available in 190 countries.
The global streaming market, expected to touch $125 billion by 2025, has attracted several new players. Although Netflix continues to dominate streaming, Amazon Prime Video (AMZN) boasts 100 million subscribers and Hulu boasts 26.8 million. The market has attracted giants such as Disney (DIS) and Apple, which are set to soon launch streaming services. Disney hopes to leverage its vast library of content. AT&T’s (T) WarnerMedia is also set to launch in early 2020.
A key growth driver for streaming services is their focus on developing original content. Netflix, Amazon, and Hulu have invested billions in producing content that caters to local audiences, facilitating international expansion.
Netflix and Amazon are trying to gain a foothold in India’s streaming market. Netflix’s Sacred Games was a huge hit among Indian audiences last year, and they are now eagerly awaiting the release of Sacred Games 2 set for later this year. Meanwhile, Amazon’s Mirzapur has garnered rave reviews.
Netflix stock’s forward PE ratio is 63.8x. Considering that the company’s earnings are expected to grow 27.6% this year and 71.3% in 2020, the stock’s PE ratio makes it look overvalued. However, its earnings are estimated to grow 49.0% annually in the next five years.
Netflix looks like a solid long-term pick, with analysts expecting its sales to rise 27.9% to $20.21 billion this year and 23.7% to $25 billion in 2020. The 41 analysts tracking Netflix stock have an average 12-month target price of $390.03, which implies just a 4.4% upside from its current price. Netflix stock has fallen 4.4% in the last year, but has risen 289.0% in the last three years and 466.0% in the last five years.