Netflix, Inc. (NASDAQ:NFLX) recently eclipsed the $600 mark — a stunning feat for a stock that was trading at less than $25 in 2008 before the financial crisis.
NFLX stock has seen plenty of ups and downs, of course, including the 2011 Qwikster disaster that aimed to separate streaming from physical DVDs and was bungled by CEO Reed Hastings and his rather harsh attitudes towards Netflix customers upset at the move. Shares of NFLX stock went from almost $300 in 2011 to less than $60 in 2012.
But thanks to original programming hits, such as House of Cards and Orange is the New Black, and aggressive international expansion, Netflix stock investors are in a much better place — and NFLX is up about ten-fold from its Qwikster lows.
But how high can Netflix go from here, and should you fear a top? No way, say analysts.
NFLX Stock Riding Global Growth
According to recent reports, analyst Jeffrey Wlodarczak said that, “Based on the outlook for a faster than anticipated roll-out of NFLX international markets we moved up our new market launch forecasts,” adding China and South Korea to long-term projections.
Furthermore, the Pivotal Research report states:
“Overall we raised our 2021 international paying subscriber forecasts from 78M to 95M which drove our total forecast NFLX subscribers by 2021 from 138M to 160M vs. our 69M forecast by YE’2015. The international forecast implies an 11% penetration of our estimate of NFLX’s 2021 total international household opportunity … Net net the model changes + increase in our terminal EBITDA multiple from 17X to 20X (to account for faster EBITDA growth) drove a $200 increase in our YE’15 target to $850.”
In layman’s terms, continued aggressive subscriber growth over the next six years will more than justify the current share price.
Separately, Topeka Capital Markets also raised its NFLX stock price target in May, from $604 to $723. Obviously this was necessary with a buy rating but a price target for Netflix that has already been quickly eclipsed, so rather than change their rating to “hold” they simply moved up the price target.
According to reports, the change was driven by optimistic projections of free cash flow in the coming years as international growth pays off.
Click to EnlargeNow, not everyone is a bull on NFLX stock. Short interest has been on the rise sharply this spring, from a low of under 5 million shares held short at the end of March to over 6 million in just a month’s time. However, if you look at the history of Netflix short interest, the stock is no stranger to this kind of short-selling — and furthermore, increased volume in the streaming video giant actually means the days to cover are at comparatively low levels than they were back in February.
Nothing is a sure thing, and some of these short sellers could be right.
However, it’s undeniable that part of the reason Netflix has been on a tear is because NFLX stock continues to post strong earnings — and squeeze those shorts right out. That’s what we saw in the company back in April after NFLX put up a roughly 25% run in just a few days after blowout earnings.
The stock is frothy, no doubt. But it’s also been a big money-maker for traders — and based on recent analysis, even if there is a short-term dip in Netflix stock then there is no stopping its steady upwards march over time.
So if you want to buy NFLX on the dip, do so with confidence.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.
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