The weakening stock market is bad news for practically every investor but it is especially damaging to the technology sector. In particular, FAANG stocks are getting pummeled. Even at these valuations, markets do not care. Yet Netflix, Inc. (NASDAQ: NFLX) is the one standout. Netflix stock  always traded at lofty valuations but could always recover on the markets whenever it reported subscription growth numbers.

Is this time different? Will investors build a position in the streaming giant by betting that revenue growth will outpace costs?

Netflix made a big bet over five years ago when it decided to own original content. “House of Cards” is one of its crowning achievements. The show lasted for six seasons and ended only because of the Kevin Spacey controversy.

Still, the original programming started the trend of binge watching. This form of content consumption solidified user subscription growth since then. In its global growth strategy, Netflix is changing the model of content creation to build its moat, depending on the country it is operating in.

Unique Strategy and Netflix Stock

Netflix will ramp up to 70 original local language shows in 2019. The key phrase here is “local language.” The firm hires local staff and content tailored to the region to build its audience.

Management believes the launches will find success in places like India, Korea, and Japan. In those places, it is creating original content and acquiring local licenses.

This resulted in a growth in hours watched. This unique strategy is working out very well so far because Netflix entered the Asian market only two years ago.

So, shows like Sacred Games is a new format for India’s market. From there, subscribers may check out Stranger Things next. And because the content library is so vast, Netflix secures subscribers who are unlikely to cancel the service.

Financial Metrics Still Matter

While the valuations are of little concern to shareholders, the financial metrics will matter as markets shun risk. Netflix’s P/E north of 100 times is acceptable because of the phenomenal growth rate over the last few years.

What markets might fret over, though, are debt levels and cash flow. To acquire original content and content libraries, Netflix must pay for it. It is doing so by issuing debt. Markets keep eyeing subscription levels because its growth is the key for positive free cash flow growth.

One Big Risk for Netflix Stock

Netflix’s true unknown risk is the ROI or return on investment, it gets on its content. So far, the company’s track record in fueling subscription growth through the right pick of shows has worked out.

One big miss could happen any time it overpays for a show and user sign-up slows. In that scenario, markets could send the stock sharply lower. Its FAANG counterparts, Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG), and Facebook (NASDAQ: FB) are all on a downtrend despite favorable valuations.

I could almost leave out Amazon.com, Inc. (NASDAQ: AMZN) in this argument. The online retailer, even though it’s down one-quarter from yearly highs, is richly valued from a P/E to growth metric. Amazon’s PEG is 2.2 times, compared to 1.5 times for NFLX stock.

Opinion on Valuation

Wall Street has yet to revise its target price on Netflix stock. Per Tipranks, the average price target, based on 36 analysts offering one, is $396. This is 50% above the recent stock price of around $264.

An analyst downgrade is always a lingering risk factor but that is applicable to any stock. Only one “sell” rating on Netflix stock  stands out in the last month. A falling stock market is a more likely negative catalyst driving Netflix stock lower.

Your Takeaway

Netflix is not a broken company, so short-selling it or even selling the stock is not a good idea. The company is on track to accumulate high-value, original content.

Its competitors, namely The Walt Disney Company (NYSE: DIS), must also invest in online services to keep up with Netflix.  For investors, both companies are suitable ways to get exposure to the streaming content space. All they need are for markets to stop trading lower.

Disclosure: None