Netflix, Inc. stock rose to a new all time high on Wednesday after Guggenheim’s report on the firm’s growth in the years ahead won Wall Street over. The firm’s stock sold for a high of $129.29 on this morning’s market. Michael Morris from the research house says that China doesn’t even factor into his $160 price target.
Mr. Morris made the comments to CNBC on Tuesday evening. On Tuesday his report on Netflix, combined with the firm’s reveal of a launch date for Japan, drive shares to new highs. Wall Street is looking for Netflix to grow massively in the next twelve months. Reed Hastings, the firm’s CEO says he sees the service hitting 200 countries by the end of next year.
Guggenheim sees “a lot of runway”
Mr. Morris, explaining the view espoused in his report on Netflix said that there is “a lot of runway even before you start talking about that potential opportunity in China.” He reckons that China is going to be a challenge for the firm, but that won’t get in the way of huge sales and earnings growth in the year ahead.
He said that at the “target of about $75B market capitalization we see the risk and reward in the model is fairly balanced.” His $160 price target on shares in the firm reflects that market cap. At time of writing shares in Netflix were trading for $125.32, up 3.44 percent for the day so far. That reflects a market cap of more than $53B.
The most important part of Mr. Morris report appears to be is discount of Netflix growth in China. “Frankly I don’t have a lot of expectation in my model for” China, he told CNBC on Tuesday afternoon.
Banking on a Netflix spike
The huge growth in the price of Netflix in recent weeks is bound to make some on Wall Street nervous. In the last month shares in the firm have been driven up by more than 33 percent. The firm’s P/E ratio now stands at more than 280. A sizable amount of earnings growth will be needed in order to take that number into a safer range.
Netflix bears rely on that number to sell their point of view. Michael Pachter of Wedbush says that the firm’s stock price and earnings are “difficult to reconcile” and that those buying shares are really “taking the leap of faith” that the firm is asking them to.
There are questions about how much it’s going to cost Netflix to make new content for all of the markets it’s planning on getting into. The firm’s profit, according to the bears, won’t be high enough to support the price of shares once those costs are factored in.
Wall Street as a whole doesn’t seem to be listening to that idea today. Instead traders are fixed on what Mr. Morris of Guggenheim says will be “the global leader in television content” in the years ahead. Shares are charging ahead based on that very idea.