Huge 42% drop in 2022, Netflix (NFLX) – Get the report from Netflix, Inc. disappointed many investors lately. And NFLX’s problems go back further than YTD – indeed, the company’s current stock price (around $345) is well below its price last year (around $500). Much of Netflix’s dramatic downfall can be attributed to the company’s inability to meet market expectations for subscriber growth and profit.
Even so, Netflix remains a company that many on Wall Street love, with some investors believing the stock to be downright cheap at today’s prices. Here, we’ll look at some factors that may warrant investing in NFLX in the coming months.
Past returns show May is a strong month for NFLX
Looking at historical data, April has generally been a bad month for NFLX. May, on the other hand, has always been strong – with an average growth of 6%, May has the third highest average monthly return for NFLX.
Of course, patterns can change and many historical NFLX returns can be attributed to noise. But given Netflix’s steep decline in recent months, a turnaround in May — a historically strong month for the company anyway — doesn’t seem out of the question.
Price close to pre-pandemic value, but business is much more robust
In January 2020, just before the onset of the Covid pandemic, NFLX was trading at $325 per share. This is only 6% below the price it is trading at today (around $345, at the time of writing).
But Netflix’s streaming business has changed significantly since the start of 2020. Segment trends have accelerated and the company has improved its leverage and growth metrics. Given these drastic improvements, it makes little sense for NFLX to be pegged to the valuation it had almost two years ago.
Online valuation with technology peers
Although many investors still consider Netflix’s valuation to be rich, the company is trading at much lower multiples than 2021 and 2020. Currently, the NFLX has a forward PE close to the PE of some of its major competitors, such as Disney – and its PE is well below that of other players in the technology sector, such as Amazon.
The confluence of these three factors – a historically positive move in May, a depressed valuation relative to 2020 and a reasonable PE compared to peers – means that Netflix could present a solid buying opportunity at current prices.
(Disclaimer: This is not investment advice. The author may have one or more stocks mentioned in this report. Additionally, the article may contain affiliate links. These partnerships do not influence the editorial content. Thank you for supporting MavenFlix)