Netflix (NASDAQ:NFLX) stock is losing ground again, slipping more than 22% off its 52-week high as a part of a broader tech stock sell-off. While Netflix was a notable exclusion from Jim Cramer’s Magnificent Seven stocks, I still think it’s a mistake to ignore the company as it looks to keep making major strides in the gaming market to jolt growth.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Undoubtedly, getting into the business of gaming is no easy feat, especially for a firm that spent its lifetime specializing in streaming film and television. With the video-streaming scene now crowded, it’s clear that Netflix needs to go above and beyond its traditional markets to maintain its high growth and high price-to-earnings (P/E) multiple.
It’s no mystery that companies gradually lose their ability to grow as they age. It’s a normal part of corporate aging to shift gears from growth to profitability and return capital back to shareholders.
Still, members of the FAANG group that graduated to the Magnificent Seven basket have demonstrated the means to keep the growth alive even into old age and market caps at, near, or above $1 trillion.
Netflix was the only FAANG company to not graduate the Magnificent Seven, and it’s not a head-scratcher as to why. The video streaming market has been tough sledding since the pandemic lockdown days and the rise of stay-at-home plays. As shares start rolling over again, I view NFLX as more of a Buy than a Sell. For now, I remain upbeat and bullish.
Netflix Stock: In Search of Ways to Grow
At this juncture, Netflix seems eager to take a page out of the FAANG playbook as it attempts to show shareholders that there’s still growth left in the tank as its original market (video streaming) matures further.
It’s important to note that the gaming industry has faced its own headwinds since the pandemic peak. Further, Netflix’s valuation multiple (and stakes) still seem as high as ever as the company looks to spend money to maintain streaming dominance while powering its next growth driver.
Now, Netflix stock has already felt a massive squeeze to its multiple — NFLX stock used to trade at an average of around 70.3 times price-to-earnings over the last five years — as a part of the brutal 2022 market sell-off that dragged shares nearly 75% off their late-2021 all-time high. That said, today’s current 39.8 times trailing price-to-earnings (P/E) multiple still entails growth, and it’s a heck of a lot richer than its ailing peers in the streaming space right now.
For instance, Warner Bros. Discovery (NASDAQ:WBD), the firm behind the MAX streaming service, trades at 0.55 times price-to-book and just 24.5 times forward P/E.
By comparison, WBD stock seems like a steal compared to Netflix. However, video games remain a massive wild card for Netflix. If Netflix can succeed in its foray into video gaming, it could more than justify its multiple as it looks to move on to new frontiers as its competitors struggle to find their footing in video streaming.
Can Netflix win its way back into Jim Cramer’s top cohort of the day? I think it can, despite Reed Hastings not acting as co-CEO. For a company that’s found profound success navigating outside of its comfort zone, I think it’s a mistake to count Netflix out of the game as it gets more skin in gaming.
Netflix and Games: “Netflix Stories” is an Intriguing Concept
Netflix has been steadily pumping out the mobile games over the past year. Still, nothing from the mobile roster has been that much of a game-changer quite yet. More recently, the company announced its “Netflix Stories” line of narrative-driven games, which includes Love is Blind, a game based on its popular reality series.
The hope is that the many fans of the series will want to give the game, which launched September 22, a go. Only time will tell if Netflix Stories will jolt the business. Regardless, it’s commendable that management is continuing to double down on its gaming ambitions.
Add recent cloud-streaming tests into the equation, which allows users to game right in the Netflix app, and it’s clear Netflix is doing everything in its power to show its massive network that it too can be a solid platform for gaming.
Is NFLX Stock a Buy, According to Analysts?
On TipRanks, NFLX stock comes in as a Moderate Buy. Out of 31 analyst ratings, there are 18 Buys, 12 Holds, and one Sell recommendation. The average Netflix stock price target is $472.64, implying upside potential of 25.45%. Analyst price targets range from a low of $293.00 per share to a high of $600.00 per share.
The Bottom Line on NFLX Stock
Netflix is experimenting with very intriguing concepts on the gaming front. Netflix Stories and cloud streaming could be a big deal as the firm looks to become a go-to place for passive and interactive entertainment. Overall, I think recent video game efforts are being discounted by Mr. Market right now.
Therefore, Netflix stock doesn’t just deserve to trade at a premium to its streaming rivals; I believe it deserves a premium over its big-tech rivals.
