Netflix (NASDAQ:NFLX) has been in the news quite a bit of late, with stock splits and mergers the talk of the town. Not to get lost in the shuffle, the company’s share price has fallen some 20% over the past half year.
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While the company’s revenues have been growing, an EPS miss during Q3 didn’t exactly help sentiment (though the management explained that this was due to a one-time tax dispute in Brazil).
Still, Netflix has delivered plenty of good news for investors of late. Its latest quarterly revenues grew 17.2% year-over-year and free cash flow increased by over 20% to hit $2.7 billion at the end of Q3.
The drooping share price also makes NFLX a cheaper buy. Could it also serve as a good opportunity to gobble up shares of the streaming giant?
Top investor Daniel Sparks acknowledges that it might be, but he has some caveats.
“Netflix look(s) attractive again, but not quite safe enough for anything more than a small position,” posits the 5-star investor, who is among the top 1% of stock pros covered by TipRanks.
Sparks believes the potential merger is not without its risks, as the “massive” Warner Bros. Discovery deal is not a foregone conclusion. He cites the rival bid from Paramount Skydance, as well as regulatory uncertainty that is clouding the picture. Another concern for the investor is that this could become a drawn-out affair, one that becomes a distraction for management.
While it is certainly cheaper, Sparks is still not thrilled with NFLX’s current valuation. He argues that a Price-to-Earnings ratio of around 40x means that investors are shelling out for “double-digit revenue growth and rapid earnings growth.”
In other words, it is okay to look and even touch, but one should proceed with caution, sums up Sparks.
“The core business still faces fierce competition for viewer time, and a mega-deal introduces integration risk and regulatory uncertainty that could add complexity to the business, distract management, and ultimately weigh on the stock,” adds Sparks. (To watch Daniel Sparks’ track record, click here)
While it’s not unanimous, overall Wall Street is feeling upbeat about NFLX. With 27 Buys, 9 Holds, and 2 Sells, NFLX enjoys a Moderate Buy consensus rating. Its 12-month average price target of $133.82 implies gains north of 40% in the year ahead. (See NFLX stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.