Why Netflix Stock (NFLX) Remains a Strong Buy Ahead of Q3 Earnings

Trading over $700, Netflix shares have rallied more than +40% year to date and are sitting on gains of nearly +150% in the last five years.

Despite a hefty price tag, Netflix stock sports a Zacks Rank #2 (Buy) with the streaming giant’s third quarter results approaching on Thursday, October 17. That said, here is a look at why now is still a good time to invest in Netflix.

Robust Subscriber Growth

Investor confidence in Netflix has been significantly bolstered by its strong subscriber growth, which has been the key driver behind NFLX’s impressive stock performance. During Q3, Netflix is estimated to have gained 4.75 million new subscribers, following a remarkable addition of 8.76 million users in the same quarter last year—exceeding expectations by 2.9 million. In Q2, Netflix surprised once again by adding 8.04 million users, surpassing projections by 2.24 million.

By continually expanding its library of original shows and content, Netflix has maintained its leadership in the streaming industry, boasting over 277 million users by the end of Q2. This figure surpasses the combined subscriber base of Disney’s major platforms (Disney+, Hulu, and ESPN) and outpaces competitors like Paramount Global, with 68 million subscribers, and Warner Bros. Discovery, with 103 million subscribers.

Q3 Financial Growth

Fueled by robust subscriber growth, Netflix is on track to deliver double-digit revenue and earnings growth in fiscal 2024 and FY25. For Q3, the company’s sales are projected to increase by 14%, reaching $9.77 billion, compared to $8.54 billion in the same quarter last year.

Even more striking, Q3 earnings are expected to jump 36%, with EPS estimated at $5.09, up from $3.73 in the year-ago quarter. Netflix has also consistently outperformed expectations, surpassing the Zacks EPS Consensus in three of the last four quarters, with an average earnings surprise of 6.15%.

Netflix's Attractive Valuation (P/E)

Despite its rising stock price, Netflix's valuation is more reasonable now than in previous years. NFLX currently trades at 37.3X forward earnings, significantly lower than its five-year peak of 100.6X and just below its five-year median of 37.9X. This highlights a more attractive entry point for investors compared to historical valuations.

The year to date rally in NFLX should continue if Netflix can reach or exceed earnings expectations and post another quarter of stellar subscriber growth. Considering Netflix’s dominant market position, a post-earnings selloff could also lead to even better buying opportunities if presented, given the company’s long-term growth trajectory and the leveling of its valuation.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.