Will Netflix stock return to pre-inflation shock highs above $650?

Netflix stock is currently trading at $397 per share, about 43% below its pre-inflation shock high of $692 seen on November 17, 2021. Netflix
NFLX
The stock was trading as low as around $167 in mid-June 2022, just before the Fed started raising rates. The stock has gained about 137% from these levels. In comparison, the S&P 500 rose about 19% during this period. In recent quarters, Netflix has benefited from its move to optimize its new ad-supported plans and cut down on password sharing in North America and several international markets, while introducing a new paid sharing option. The company also added a relatively solid 5.9 million customers in the second quarter due to password-sharing changes.

Interestingly, NFLX stock’s Sharpe ratio has been 0.6 Since the beginning of 2017, in accordance with 0.6 for the S&P 500 index over the same period. It is compared to Sharp of 1.3 For Trefis Reinforced Value Portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Inflation returning to pre-shock levels means Netflix stock would need to gain about 74% if the stock rises from its current pre-shock high of $692 to $397. While it’s possible the stock may return to those levels, our current estimate is netflix evaluation About $377 per share, about 5% below the current market price. This is because recent uncertainty in the financial sector has made investors worried about a possible recession. Netflix’s business could be adversely affected if the U.S. economy goes into recession with consumer spending cooling.

Our detailed analysis of Netflix reverse blow after inflation Captures trends in a company’s stock during the turbulent market conditions seen in 2022 and compares these trends to the stock’s performance during the 2008 recession.

2022 inflation shock

Timeline of inflation shocks so far:

• 2020 – early 2021: Increase in money supply to mitigate the impact of lockdowns led to higher demand for goods; Manufacturers were unable to keep up.
• Early 2021: Shipping disruptions and labor shortages due to the coronavirus pandemic are impacting supplies
• April 2021: Inflation rate crosses 4% and increases rapidly
• Early 2022: Energy and food prices rise due to Russian invasion of Ukraine. Fed begins its rate hike process
• June 2022: Inflation levels reach 9% – the highest level in 40 years. The S&P 500 index fell more than 20% from the high.
• July-September 2022: The Fed raises interest rates aggressively – resulting in an initial correction in the S&P 500 followed by another sharp decline.
• From October 2022: Fed continues rate hike process; Improving market sentiment helped the S&P500 recoup some of its losses.

By contrast, here’s how NFLX stock and the broader market performed during the 2007/2008 crisis.

Timeline of the 2007–08 crisis

• 10/1/2007: Estimated pre-crisis peak in the S&P 500 index
• 9/1/2008 – 10/1/2008: Market decline accelerates in line with Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Estimated bottom of the S&P 500 index
• 12/31/2009: Initial recovery to levels before rapid decline (circa 9/1/2008)

Netflix and S&P 500 performance during the 2007–08 crisis

NFLX stock rose from about $3 in October 2007 to $5.20 in March 2009 (as the market was bottoming), meaning the stock gained about 70% while defying the market selloff. It increased by approximately 52% between March 2009 and January 2010, rising to around $7.90 in early 2010. The S&P 500 index saw a 51% decline, falling from a level of 1,540 in September 2007 to 757 in March 2009. After this it increased by 48. % reached 1,124 between March 2009 and January 2010.

Netflix basics in recent years

Netflix’s revenue is projected to grow from approximately $15.8 billion in 2018 to approximately $31.60 billion in 2022, as the company’s subscriber base and average revenue per subscriber expand, driven by the company’s larger investments in content and its international expansion . Net income also increased, rising from approximately $1.2 billion in 2018 to approximately $4.5 billion in 2022, as net margins expanded along with improved cost absorption coupled with the company’s higher customer base.

conclusion

With the Fed’s efforts to control rapidly rising inflation rates helping market sentiment, Netflix stock is likely to rise once fears of a potential recession fade away.

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