Is Trending Stock Netflix, Inc. (NFLX) a Buy Now?

netflix (NFLX) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Over the past month, shares of this internet video service have returned +15.5%, compared to the +1.4% change in the Zacks S&P 500 composite. radio and television Zacks Broadcast, of which Netflix is ​​a part, gained 6.6%. The key question now is: what could be the future direction of the title?

Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.

Revisions to earnings estimates

At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.

Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.

For the current quarter, Netflix is ​​expected to post earnings of $2.13 per share, which represents a -33.2% change from the prior year quarter. The Zacks consensus estimate has changed -24.3% over the past 30 days.

For the current year, the consensus earnings estimate of $10.06 indicates a change of -10.5% from the prior year. Over the last 30 days, this estimate has changed by -7.9%.

For the next fiscal year, the consensus earnings estimate of $10.92 indicates a change of +8.5% from what Netflix is ​​expected to report a year ago. Over the past month, the estimate has changed by -9.7%.

have a strong externally audited balance sheet, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the near term, as it effectively harnesses the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimatesNetflix is ​​ranked Zacks Rank #3 (Hold).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Consensus 12-month EPS estimate for NFLX _12MonthEPSChartUrl

Revenue Growth Forecasts

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a company.

For Netflix, the consensus sales estimate for the current quarter of $7.84 billion indicates a year-over-year change of +4.8%. For the current and future fiscal years, the estimates of $31.67 billion and $33.97 billion indicate variations of +6.6% and +7.3%, respectively.

Latest reported results and history of surprises

Netflix recorded revenue of $7.97 billion in the last quarter, representing a year-over-year change of +8.6%. EPS of $3.20 for the same period versus $2.97 a year ago.

Compared to the Zacks consensus estimate of $8.03 billion, reported revenue is a surprise -0.71%. Surprise EPS was +10.34%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company exceeded consensus revenue estimates only once during this period.

Evaluation

No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.

While comparing the current values ​​of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of the stock price .

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Netflix is ​​rated C on this front, indicating that it trades at par with its peers. Click here to see the values ​​of some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether it’s worth paying attention to the market buzz about Netflix. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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