The early months of 2025 have been very hard on the stock market due to a combination of political turmoil and concerns about a potential recession later in the year. Tech stocks have been hit especially hard as the market prices in less optimistic forward growth assumptions for the mega-cap tech companies that have led the way in terms of returns for the last two years.
One stock that hasn’t been weighed down by the broader market, though, is Netflix (NASDAQ:NFLX). Shares of the streaming giant are up more than 80% in the last 12 months and more than 9% in the last 30 days alone.
Is Netflix a must-own stock to ride out the market’s current volatility, or has the stock become too expensive by rising throughout a general market correction?
Why Netflix Shares are Still Flying High
Netflix’s stock has been on a tear lately and a big part of that momentum comes from its blowout Q1 earnings report. The leadership team managed to rake in $10.54 billion in top line sales, a pop of 12.5% from last year and expects revenue to climb even higher to $11.04 billion in Q2.
Operating income followed suit, ballooning 27% to $3.35 billion, with forecasts pointing to $3.68 billion next quarter. The bottom line was nothing to sneeze at either with earnings per share coming in at $6.61 in Q1, up from $5.28 a year ago. If Netflix hits its Q2 target of $7.03 per share, that would mark another big leap from last year’s $4.88. Free cash flow has been on the run also, with management reporting $2.66 billion, up from $2.14 billion in the year ago quarter.
But what’s really fueling investor excitement is the long-term outlook. Analysts are betting that Netflix will grow the bottom line by nearly 24% annually through 2030. If management keeps delivering numbers like this, there’s a good chance NFLX share price still has plenty of room to run.
This increase in per-share earnings is also being driven by an ongoing program of share buybacks. In Q1 alone, Netflix spent $3.5 billion to buy back 3.7 million shares of its own stock. Management has a remaining authorization of $13.7 billion, suggesting that repurchases could continue at a brisk pace. The number of outstanding NFLX shares has been falling steadily over the past few years, and a continuation of this trend is likely to be very beneficial for shareholders.
Netflix also enjoys a certain degree of insulation from the effects of the tariffs and potential trade war that are bothering the rest of the market. As a streaming service whose product is digital, Netflix isn’t as exposed to the effects of trade restrictions as many other high-growth tech companies.
As such, some investors may be turning to Netflix as a defensive stock to protect their portfolios from some of the worst effects of the negative macroeconomic climate.
Netflix Isn’t a Risk-free Bet
Despite all the pluses, revenues may very well be affected by consumers canceling or paring back on streaming services in order to pad their household budgets in anticipation of tougher times ahead. A similar dynamic played out in 2022 when many consumers expected a recession and started tightening their belts.
While we haven’t seen these trends play out yet in 2025, consumers might eventually decide to cut back on streaming if a recession occurs.
Right now, JPMorgan economists are forecasting a 60% chance of the US slipping into recession this year. Consumer sentiment is also down to the second-lowest level since the 1950s, reflecting significant worries around the job market and the cost of goods. As such, it would hardly be unusual to see spending on non-necessary budget items like streaming services pull back in the near future.
It’s also worth acknowledging that investors are paying very high premiums for Netflix today, raising the possibility of overvaluation. At 49.6x earnings, 11.5x sales and 61.8x operating cash flow, NFLX is anything but cheap at the moment.
Although more favorable earnings reports of the kind Netflix delivered in Q1 could certainly cause some upward revisions, it looks as though the stock could be either fully overvalued to slightly overvalued at the moment.
Is Netflix a Must-own Stock Right Now?
Analysts also see very limited near-term upside on Netflix right now. The average target price for the stock is $1,094.42, a price that would see the stock gain just 4.3% in the coming 12 months.
In many ways, Netflix is decent choice for riding out what is increasingly looking like a tough year, while ongoing growth appears to support higher long-term share prices. Netflix also has a very strong competitive position.
Amazon Prime did eclipse it with a 22% share of the streaming market, but Netflix remains near the tippity top with 21% market share.
With that said, investors should also understand the risks associated with NFLX. At today’s prices, there could be limited room for upside in the short term. It’s also feasible that conditions will eventually lead consumers to pull back on streaming services, causing Netflix’s otherwise very impressive growth to slow down. Such a slowdown would likely be temporary, but it could cause shares to drop or stagnate considering the high rate of growth that currently seems to be priced into the stock.
Even with these considerations in mind, Netflix still looks like a fairly good buy in today’s market. The Santa Cruz founded firm is growing well and steadily improving its earnings per share, a fact that will likely support higher future share prices even with the stock’s premium valuation. Although the forward growth probably won’t get anywhere near the trailing 12-month return that NFLX has managed to deliver, it still appears to be a good stock to buy and hold for steady compounding growth.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.