Netflix’s (NASDAQ:NFLX) highest stock trading price that has been recorded so far is $489.29. Its present stock trading price is also hovering near this highest price i.e. at $474.91. This elevation in its stock prices is a direct corollary of the company’s announcement, stating that the company’s subscription growth far exceeded its expectations. This escalation was observed in the report concerning the quarterly earnings for the Q4 of FY14. After these unexpected earnings made by the company, the stock results showed an increase of almost $137. Interestingly, this increase was witnessed in trading which was carried in hardly a month following the company’s earnings. These results delineate the difference between the post-earning stock price and pre-earning stock prices; since the former reflect an increase of 40%.
Process of Valuation of stock
If one is to classify Netflix (NASDAQ:NFLX), then advertently the company would be placed in its growth stages since it is continually growing and improving. Although, the company has a short history, but investors tend to ignore this fact and instead place their faith in the company’s commendable success rate. This statement can be reinforced by the fact that when the company failed to achieve its expected subscription growth target, there was a decrease of almost 20% in the third quarter of fiscal year 2014. In contrast, there has been a surprising elevation in the stock prices after the results of the recent quarter, where the earnings surpassed their expected target.
This situation might tend to pose a problem for Netflix (NASDAQ:NFLX), since in the coming years maintenance of growth might get complex as well as expensive. To counter such competition, Netflix (NASDAQ:NFLX) will definitely have to make a noteworthy investment. It is also very probable that growth might be on the slower side, since many other streaming platforms would be made available and people might prefer those.
The Present Multiples of Valuation
The current statistics suggest that Netflix’s (NASDAQ:NFLX) stock is carrying out its trade at a multiple of 99.57. This multiple of 99.57 is for P/E of one year. These statistics serve as a premium valuation of approximately 110%, impacting the S&P 500 Index of Internet retail. In the past also, this pattern can be traced that Netflix (NASDAQ:NFLX) had made a point of going after the very trend of valuation of multiples for the index. However, this time an anomaly has been observed in the sense that Netflix (NASDAQ:NFLX) has outstepped the index. This outpacing has been made possible owing to the improvement speed of the company. This statement can be reiterated by the official figures which delineate that the stocks’ present premium regarding multiples based on earnings has exceeded the previous year’s average i.e. the premium of 74.4%.
Thus, if a comparison is made within the company’s own statistics (i.e. the present valuation multiple of the company with its past evaluation multiple); the results will make it evident that the company has outpaced the average of its last year with the present multiples.
