Investors have faced some instability recently due to soft economic data in the U.S., an increase in interest rates in Japan, and… Berkshire Hathaway is a multinational conglomerate holding company headquartered in the United States. They have a forceful selling approach. led to significant decreases During the previous week S&P 500 and the The Nasdaq Composite Index index.
Nevertheless, savvy investors recognize that fluctuations are expected when aiming for consistent long-term profits. The market decline could potentially offer profitable chances in exceptional companies, such as this innovative streaming service provider, whose stocks have decreased by 10% from their highest point in 2024 (as of August 6th).
Would it be wise for investors to purchase this outstanding stock when its price drops?
Taking control of the changing media environment
Investors seeking to acquire ownership in Netflix ( NFLX 0.57% ) The top streaming company, solely focused on streaming services, could consider capitalizing on the negative sentiment in the market. There are several factors to admire about this particular company.
Beginning with the first-mover advantage of Netflix, the early lead it had in the streaming industry enabled it to quickly gain customers and experience significant revenue growth. Netflix was able to capture subscribers at an impressive rate by providing a better user experience than conventional cable television services.
Undoubtedly, the streaming sector is currently highly competitive, with Netflix holding a dominant position. By June 30, the platform boasted 278 million subscribers spread across more than 190 nations. Netflix has emerged as a leading force in the global media and entertainment landscape, enjoying advantages of its large scale.
Growth is expected to decrease, despite management’s projections. The complete market size that a company can potentially target. Netflix has the potential to reach 500 million smart TV households globally, especially those who are not current customers. In countries like the U.S. and Canada, Netflix has a history of effectively adjusting its prices.
Due to its large scale, Netflix is able to generate significant revenue, amounting to $36 billion over the past year. This financial strength enables the company to invest substantial sums in creating and acquiring content, leading to increased profits. Netflix anticipates achieving an operating margin of 26% this year, surpassing the margins of 21% and 18% from the previous two years. The company is demonstrating the advantages of its adaptable business approach, especially compared to competitors who are facing challenges in their financial performance.
During the 2010s, Netflix invested heavily in gaining subscribers and expanding its content library, leading many critics to doubt that the company would be able to generate free cash flow (FCF). However, Netflix has defied expectations by successfully generating billions of dollars in FCF, part of which is used for share repurchases.
Make sure to take the valuation into consideration.
Investors rarely come across the opportunity to purchase shares of a leading company at a discounted price. In May 2022, Netflix’s stock was available for a lower price. PE ratio A P/E ratio of 15, which was considered unusual. In addition to the overall market decline due to increasing interest rates, investors were concerned about Netflix losing subscribers in the first quarter of 2022. However, looking back, this event actually presented a great chance to make purchases.
Currently, Netflix’s stock is not considered inexpensive, as it is trading at a P/E ratio of 39. At first glance, this may not seem attractive, as it reflects a 25% higher valuation than usual. Nasdaq-100 index. Nonetheless, it is significantly more affordable compared to the stock’s valuation multiples over the past five or ten years.
It is noteworthy to mention that Netflix’s earnings per share (EPS) have significantly increased by an average of 52% annually over the last five years. Analysts on Wall Street predict that EPS will continue to grow at a rate of 32% per year from 2023 to 2026.
Since the shares of Netflix have dropped by 10% from their highest point in 2024, now might be a favorable moment to seize the opportunity and include Netflix in your investment portfolio.
