Netflix is a Buy right now, this portfolio manager says

It’s a given that with all the competing streaming services currently vying for both our eyeballs and subscription dollars, the first-mover advantage once held by Netflix (Netflix Stock Quote, Charts, News, Analysts, Financials NASDAQ:NFLX) has dropped faster than all those frilly frocks on Bridgerton. 

Yet, Netflix’s dominance in streaming is far from over, according to Barry Schwartz of Baskin Wealth Management, who recently named Netflix one of his top picks for the 12 months ahead.

“Netflix was the darling during COVID and then it was, ‘Oh, they’re losing subscribers! They don’t know what they’re doing!’” said Schwartz, chief investment officer at Baskin, who on Monday named Netflix one of his three top picks on a BNN Bloomberg session.

“Well, the only ones who don’t know what they’re doing are their competitors Disney and Paramount and Comcast — those streaming services are losing billions of dollars and Netflix is profitable. They’re extremely profitable,” he said.

The market has always been touchy when it comes to Netflix and its subscriber numbers, with investors regularly selling off after quarterly misses on subs. The inverse relation has also the case, though, as observed earlier this year when the company posted a beat on subscribers in its fiscal fourth quarter, coming in with 7.66 million adds versus the Street’s expectation of 4.57 million. The stock bumped higher on the news.

Profitability also featured in the mix, with Netflix hitting margins of seven per cent and generating EPS of $0.12 per share, while quarterly revenue came in-line with expectations at $7.85 billion.

The stock has done well over the past half year, rising from about $220 per share in August of last year to around $360 by late January, although there’s been a pullback to $300 more recently.

Schwartz thinks over time investors will be rewarded with at least a double from current levels.

“These business models take time to work but once you’ve established your subscriber base and you raise prices and you slow down the costs, the profits just gush,” Schwartz said. “Netflix is guiding for over $3 billion of free cash flow this year. It’s trading, in our opinion, at a very reasonable multiple, and there’s just more growth and more services that we think it can sell to customers over the long term.”

“The stock was at $700 and that was insane. It got down to $188 and that was stupid too,” he said. “I think $300 is reasonable but we see earnings doubling over the next five years. The stock should double-plus.”