Netflix (NASDAQ:NFLX) shares have made a bit of a comeback recently. They’re still down massively from their highs (over a one-year horizon they’re down about 60%). Yet since mid-July, they’ve risen nearly 40%.
Given that they’re rising again, I’m wondering whether it’s a good time to buy Netflix shares for my portfolio. Let’s take a look.
Should I buy Netflix shares today?
Let’s start by looking at the valuation here. Is there value on offer right now?
At present, Wall Street analysts expect Netflix to generate earnings per share (EPS) of $10.10 for 2022 and $10.80 for 2023. This means that at the current share price of $240, the stock is trading on a forward-looking price-to-earnings (P/E) ratio of 24, falling to 22 using next year’s EPS forecast.
In the past, these ratios would have been considered an absolute steal for Netflix. Not so long ago, this stock had a triple-digit P/E ratio. However, times have changed and the company’s growth has slowed. This year, revenue growth of just 7% is projected. Meanwhile, net profit is expected to decline 11% to $4,536m. Looking at these projections, I wouldn’t say the stock is a bargain at the moment.
Growth plan
Now, Netflix does have a plan to accelerate growth.
Shortly, it’s about to launch an ad-supported tier in an effort to appeal to consumers who don’t want to pay a monthly subscription fee. This is a smart move. Netflix expects this tier to capture about 40m viewers worldwide by Q3 2023, according to the Wall Street Journal.
Wall Street certainly seems to like this plan. Recently, analysts at Oppenheimer upgraded the stock to ‘outperform’ from ‘perform’, stating that the new ad tier should accelerate subscriber growth, drive average revenue per user, and slow churn. They have a price target of $325 here, which implies share price upside of about 35% right now. Meanwhile, analysts at Evercore ISI believe the new plan is not factored into the share price. Their price target is $300, which implies upside of around 25%.
My view is that a lot will come down to execution. If Netflix can execute on this plan and gain a bunch of new subscribers, there’s a good chance its share price will rise. However, there’s no guarantee the plan will work. Consumers have a lot of options these days when it comes to streaming. Right now, Netflix faces competition from the likes of Disney, Amazon Prime, Apple TV, Hayu, YouTube, and more.
Netflix stock: my move now
Putting this all together, I’m happy to leave Netflix shares on my watchlist for now.
If Netflix can execute on its growth plan, today’s share price may turn out to be a bargain. However, I’d like to see some evidence that the plan is working before I buy shares.
Until I see this, I think there are better shares to buy for my portfolio.