Netflix (NFLX)- Market All Star or Overvalued Tech Stock

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Netflix (NFLX) has been a huge force in the streaming and content industry.  While the company has humble roots as a DVD rental service, the later half of the 2000’s has seen the company actively grow its subscriber base using the internet to deliver instant video content.  The company continues to innovate by funding exclusive shows, streaming new Ultra HD 4k Content, and opening its platform to the rest of the globe.  College students and seniors alike can find custom tailored recommendations for their viewing type based on machine learning algorithms.  Does the company deserve your attention as a valued stock asset?

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The stock price currently sits at around $140 after a prolonged rally stretching back to July of 2016 when shares were trading at $88.  Is this powerhouse stock going to be able to keep up the momentum in the coming months as competition continues to increase?  Services like Amazon Prime Video, Sling TV, Direct TV Now, and others are all working to produce and serve content to the cable cutter generation.  Netflix has to create value in its original shows and content as it is becoming the main differentiation point in a crowded marketplace.  Over 93 Million people are Netflix members, with about half of that number coming from outside the United States.

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Investors have placed high expectation on the company with respect to new subscriber growth, and the company has exceeded those numbers each of the past 2 quarters.  The one figure that leaves people questioning the value of NFLX shares is their insane P/E number.  P/E is a figure that measures price to earnings, and it is the number of years needed to recoup a current investment based on the revenue figures of the company.  The technology sector typically has a high P/E as it is very hard to value, but Netflix in its current state would take over 333 years to make back the company value based on the share price.  People should be wary of watching the stock climb without seeing significant revenue growth to match as this is a sign that the stock could be overvalued.  Risk increases exponentially when something is overvalued and has no plan to grow their revenue stream.

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Having movies at your fingertips is an amazing feat, and as the technology around us continues to change, will Netflix be able to continue its run and innovate in order to stay relevant?  Is the share price too high to justify as an investment?  These and many other questions lie ahead of the company, but they have indeed had several years of rapid growth and have become a household name all over the world.

 

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