Netflix shares are rising again. Should I buy them?

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netflix (NASDAQ:NFLX) stocks have made a small comeback recently. They are still down massively from their highs (on a one-year horizon, they are down about 60%). However, since mid-July, they have increased by almost 40%.

Given that they are rising again, I wonder if now is a good time to buy Netflix stocks for my portfolio. We’ll take a look.

Should I buy Netflix stock today?

Let’s start by looking at valuation here. Is there value on offer right now?

Currently, Wall Street analysts expect Netflix to generate earnings per share (EPS) of $10.10 for 2022 and $10.80 for 2023. This means that at the current price of $240 stock, the stock trades on a forward-looking price-to-earnings ratio. (P/E) of 24, falling to 22 using next year’s EPS forecast.

In the past, these ratios would have been considered absolute theft for Netflix. Not so long ago, this stock had a triple-digit P/E ratio. However, times have changed and the company’s growth has slowed. This year, revenue growth of only 7% is expected. Meanwhile, net income is expected to fall 11% to $4,536 million. Looking at these projections, I wouldn’t say the stock is a good deal at the moment.

Growth plan

Now Netflix has a plan to accelerate growth.

Soon, it is set to launch an ad-supported tier in an effort to appeal to consumers who don’t want to pay a monthly subscription. It’s a smart decision. Netflix expects this level to attract around 40 million viewers worldwide by Q3 2023, according to the The Wall Street Journal.

Wall Street certainly seems to like this plan. Recently, analysts from Oppenheimer upgraded the stock to “outperform” from “perform,” indicating that the new ad tier is expected to accelerate subscriber growth, drive average revenue per user, and slow churn. They have a price target of $325 here, which implies a stock price upside of around 35% right now. Meanwhile, analysts from Evercore ISI believes the new plan is not factored into the stock price. Their price target is $300, which implies an upside of around 25%.

My view is that a lot will depend on the execution. If Netflix can execute this plan and gain a bunch of new subscribers, chances are its stock price will rise. However, there is no guarantee that the plan will work. Consumers have a lot of options these days when it comes to streaming. Currently, Netflix faces competition from companies such as disney, Amazon Prime, Apple TV, Hayu, YouTube, and more.

Netflix Stock: My Move Now

Putting it all together, I’m happy to leave Netflix shares on my watchlist for now.

If Netflix can execute on its growth plan, today’s stock price could turn out to be a bargain. However, I would like to see evidence that the plan is working before I buy shares.

Until I see this, I think there are better stocks to buy for my portfolio.

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