Netflix, Inc. (NASDAQ:NFLX) stock has risen by around 17 per cent today, as the company’s earnings report from earlier this week continues to woo investors. The internet video streaming service, has outrun price target quicker than analysts can keep up.
A report released just this morning from Cantor Fitzgerald research put a target of $150 on the company’s stock, and maintained a buy rating. Netflix, Inc. (NASDAQ:NFLX) On Friday, opened at $145.67, but had beaten that price target about 6 minuted after the market opened. To be fair the report was originally published yesterday, and the price target was reprinted in a recap.
At the 2021 SALT New York conference, which was held earlier this week, one of the panels on the main stage discussed the best macro shifts coming out of the pandemic and investing in value amid distress. The panel featured: Todd Lemkin, the chief investment officer of Canyon Partners; Peter Wallach, the managing director and Read More
Netflix’s earnings report was certainly stellar, but there has to be some kind of ceiling on the stock. The firm’s stock price has risen by more than 70 percent in the last five days, and it’s showing no signs of stopping. When a research firm’s price target is raced past about an hour after it’s been placed, investors should take a second look.
The earnings report from the company was, however, pretty solid. The company beat both earnings and revenue growth, showed better than expected increases in subscriptions, and its international service displayed signs that it might soon begin to show a profit.
The firm also managed to achieve a material increase in its net margin. The firm increased its margins in both streaming and its DVD business – one of the surprises in the earnings report. The company’s mail order DVD lending business appears to be disappearing at a much slower rate than had been anticipated previously.
There is the small matter of the regular discussions regarding bubbles in tech stocks that should be taken into account here. Netflix is looking strong coming out of its quarterly earnings, but its P/E now stands at almost 600. That’s a difficult point to support, especially in an industry known for fickle investing.
Netflix, Inc. (NASDAQ:NFLX) according to the Cantor Fitzgerald report, which was titled “Netflix Takes Cake So Far This Earnings Season,” has it’s business “firing on all cylinders,” and “opening up very large markets.” Is that enough to justify its current valuation, which is 60 times that of Apple Inc. (NASDAQ:AAPL).
The same question should be asked of other tech companies, including Amazon.com, Inc. (NASDAQ:AMZN), which will announce its earnings next week. Amazon currently has a P/E of close to 4000. That number implies expected earnings so massive, that they seem completely impossible to achieve. Despite the impossible odds the firm’s stock continues to rise.
Netflix is performing well, but it is facing huge competition from companies like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and several others in the video streaming market. Its business model is fairly easy to repeat, and its moat certainly isn’t wide enough to guarantee success going forward.
The recent increase in the company’s shares may be the result of a short squeeze, as many investors incorrectly anticipated a miss on earnings this time around, as costs rose. The firm has delivered positive surprises in the last five quarters consecutively. It is now being repeatedly compared to Apple Inc. (NASDAQ:AAPL), though the two are very different companies.
Netflix, Inc. (NASDAQ:NFLX) investors will hope that the company can continue to beat price targets on a daily basis, but that just doesn’t seem sustainable. Netflix is trading at a ridiculously high multiple, and cannot grow at its current rate forever. Something has surely got to give in the coming days.
At time of writing, Netflix, Inc. (NASDAQ:NFLX) shares were sitting at $172, 17.3 percent higher than they were at open. The company’s been a great investment for the last few days, but doubt is bound to spread if this rally goes on any longer.