Buy Netflix Stock Now Ahead of Profits at a Huge Discount?
This story originally appeared on Zacks
Netflix NFLX the stock has fallen alongside many growth names since November and to start 2022. The big pullback is only part of why the streaming TV stock might be worth buying ahead of its release financial year for the fourth quarter of fiscal 2021 on Thursday, January 20.
Streaming is still a growth game
The streaming TV pioneer was one of the early winners in the pandemic which ultimately suffered from a drop in user numbers. Netflix is also facing increased competition from Disney DIS, Amazon, Apple, and nearly every other major media company as streaming attempts to overtake linear TV.
Fortunately, the streaming wars are far from winning, as many consumers pay for multiple services given their vastly different libraries of content. Netflix also continues to roll out a diverse lineup of shows, movies, reality TV, and more, in the United States and around the world.
Netflix has made deals with Hollywood giants in front of and behind the camera. These partnerships highlight the slow death of movie theaters, especially outside of massive blockbuster releases, which have been dominated by Disney properties in recent memory. Additionally, the streaming TV giant is entering the booming mobile gaming space.
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Most recently, NFLX topped third quarter earnings and user estimates to end the quarter with 9% more users at 213.6 million. Executives forecast similar year-over-year user growth in the last quarter of 2021 to end the year with 222.1 million users globally.
Last quarter, Netflix said it continued to forecast it would post free cash flow roughly in breakeven in 2021, barring a variable production schedule. And he “expects to be FCF positive on an annual basis in 2022 and beyond.”
Management reiterated its conviction that it no longer needs to raise external funding to finance day-to-day operations. The NFLX bought back some stocks last quarter, but it continues to prioritize funding “new growth opportunities like games, followed by selective acquisitions.”
Going forward, Zacks estimates Netflix’s FY21 adjusted EPS should climb 77% on 19% higher sales, allowing it to generate $ 29.70 billion. The company is then expected to follow that with 24% higher profits in 2022 and 14% higher revenue to hit $ 33.95 billion. NFLX’s consensus FY21 and FY22 estimates have risen since its release in the third quarter, although there has been mixed revisions activity to help it land a Zacks Rank # 3 (Hold) at this time.
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Netflix stock has climbed 315% in the past five years to explode the tech industry’s 160% race, and it was one of the best performing stocks of all 2010. After a first post-pandemic push, NFLX stock moved sideways for about a year until it started to rebound in August. The title then hit records in mid-November. But NFLX has fallen 23% since then to again sit at summer 2020 levels.
Netflix’s downfall pushed it well below oversold RSI levels (30 or less) of 23. The drop, coupled with its impressive outlook for EPS growth, has NFLX trading at its lowest level in a decade. at 40.3X the anticipated earnings over 12 months. Along with its updated valuation, Netflix is trading 25% below its current consensus price target of Zacks.
Wall Street also remains high on NFLX, with 70% of brokerage recommendations Zacks has based on “strong buy”. Therefore, short-term investors and those with a longer-term outlook might want to consider Netflix stocks now.
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