A Look Into Netflix's Price Over Earnings
Looking into the current session, Netflix Inc. (NASDAQ: NFLX) is trading at $406.29, after a 2% decrease. Over the past month, the stock decreased by 1.36%, but over the past year, it actually went up by 15.47%. With questionable short-term performance like this, and great long-term performance, long-term shareholders might want to start looking into the company's price-to-earnings ratio.
Assuming that all other factors are held constant, this could present itself as an opportunity for shareholders trying to capitalize on the higher share price. The stock is currently down from its 52 week high by 11.48%.
The P/E ratio measures the current share price to the company's EPS. It is used by long-term investors to analyze the company’s current performance against its past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also shows that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future.
Depending on the particular phase of a business cycle, some industries will perform better than others.
Netflix has a better P/E ratio of 83.96 than the aggregate P/E ratio of 29.11 of the entertainment industry. Ideally, one might believe that Netflix might perform better in the future than its industry group, but it’s probable that the stock is overvalued.
There are many limitations to P/E ratio. It is sometimes difficult to determine the nature of the earnings makeup of a company. Shareholders might not get what they're looking for, from trailing earnings.
See more from Benzinga
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
