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Netflix (NFLX) Is Still a Great Growth Stock, Goldman Agrees

Shares of Netflix NFLX jumped over 1% during Tuesday morning trading, just one day after Facebook’s FB latest turmoil led to a nearly industry-wide tech sell-off. Yesterday’s downturn, coupled with continued economic uncertainty, has led some investors to move into more value-focused stocks—but now seems like the wrong time to leave Netflix.

Value Over Growth?

During market volatility, investors tend to place their faith in steady, value-laden giants such as Ford F or General Motors GM, which boast single-digit P/E ratios. This can mean that these same investors dump high growth, high P/E companies such as Netflix to do so.

But if a company’s revenues and earnings are expected to surge in an industry that is set to expand, the intuition to flee these growth stocks should recede. In Netflix’s case, investors should think long and hard before moving on.

And Goldman Sachs GS agrees, with analysts at the investment banking firm saying that now isn’t the right time to move to value in favor of growth.

‘Steady economic activity and a gradually tightening Fed create an environment conducive to further growth stock outperformance,” Goldman's chief U.S. equity strategist, David Kostin, wrote in a note to clients recently. “Long term, we believe value represents an attractive factor tilt and investment strategy, but we expect growth will provide superior short- and medium-term returns.”

Kostin pointed directly to tech bellwethers Micron MU, Amazon AMZN, and Netflix as prime examples of strong growth stocks.

Growth Fundamentals

Investors don’t need to take the words of one of Goldman's top equity strategists at face value. Netflix’s performance metrics and current outlook should paint a strong enough picture.

Netflix has seen its stock price skyrocket 115% over the last year and 63% since the start of 2018—which makes it one of the biggest movers in the entire S&P 500.

The streaming company, which posted a strong fiscal year in 2017, is projected to see its 2018 sales surge 36% to hit $15.89 billion, based on our current Zacks Consensus Estimates.

Nevertheless, some investors might still be worried about Netflix’s plan to spend $8 billion on content in 2018 as it enhances its lineup of original programming to better compete against the likes of Amazon, Hulu, HBO, and soon enough Disney DIS.

This is a lot of money, and Netflix is poised to continue to spend big on content for years to come, but it doesn’t seem that it will hurt its bottom line anytime soon. Netflix’s Q1 earnings are expected to pop 57.5%, while its fiscal 2018 EPS figure is projected to skyrocket over 118% to hit $2.73 per share.

What’s more, Netflix is also expected to expand its EPS figure at an annualized rate of 26.7% during the next three to five years.

Asian Growth

One way that Netflix will ensure this growth is by expanding its reach in Asia. RBC Capital Markets analysts noted last week that they expect Netflix to grow in Japan and other key Asian regions as consumers become more willing to pay for premium content.

One of RBC’s technology analysts, Mark Mahaney, upped his Netflix price target from $300 per share to $350 per share, which represents an upside of 11.6% from Monday’s closing price.

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The Walt Disney Company (DIS): Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Netflix, Inc. (NFLX): Free Stock Analysis Report
 
Facebook, Inc. (FB): Free Stock Analysis Report
 
Ford Motor Company (F): Free Stock Analysis Report
 
General Motors Company (GM): Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report
 
Micron Technology, Inc. (MU): Free Stock Analysis Report
 
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