Soaring shares of Netflix are set to stream even higher, according to Rob Sanderson, a research analyst who covers the stock for MKM Partners.
Ahead of Thursday's bell, Sanderson raised his 12-month price target on the then-$158 stock to $195. His bullish report appeared to put a bit more wind in Netflix's
To be sure, his target change did not rest on any massive reworking of expectations. Actually, the methodology that leads to his $195 price is almost pleasantly clinical.
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Sanderson continues to
At the end of January, when Sanderson slapped his prior one-year price target on the stock, one year from then was about two years away from 2020 — so $273 was divided by 1 plus 25 percent, raised to the second power. Now, a year from now is about a year and a half from 2020, so $273 is divided by 1 plus 25 percent, raised to the
This simple arithmetic can cause one to forget the fact Sanderson is forecasting that Netflix's earnings will explode from about $0.50 in 2016 to more than $12 in five years' time. And to further forecast that even after the stock does so, investors will still be sufficiently optimistic about future profits to slap a high earnings multiple on the company.
Sanderson said in an interview Thursday on CNBC's "Power Lunch" that the company has "more than ample opportunity to continue to scale up [its] content investment on a global basis," and that "the subscriber opportunity is sufficiently large."
While some might be tempted to bet against such heady expectations, Dennis Davitt of Harvest Volatility Management uses the harshest language to warn against doing so.
"I've seen a lot of really good investors lose a great amount of money on stocks like Netflix, and that usually comes from when they short them," Davitt said Thursday on "Power Lunch." "It's a momentum stock."
However, Davitt says it would be prudent for Netflix investors to buy a downside put on the stock, in order to maintain their upside while protecting themselves from the potential for great downside.
"I think Rob's right, personally," he said. "But if Rob's not right, it costs you 5 percent to own the 'insurance policy' on the stock."
Netflix is up more than 30 percent year-to-date.