Don’t Blame Reed: Netflix’s Real Problem Is Growth
Netflix (NFLX9.72%) stock is taking a beating—down over 9% today when the S&P 500 is hitting record highs. If any of that decline is due to Reed Hastings stepping down as chair, then that is silly. Hastings hasn’t been involved in the day-to-day operations for a long time, and he has groomed an excellent management team. Also, he will still be a large shareholder of Netflix with approximately a third of his net worth in the stock. However, his departure is sentimental as I have been a huge fan of his. What did to build Netflix is nothing short of extraordinary. He will remain one of the best CEOs ever in my estimation.
The fears of saturation and slowdown in the U.S. are very real and validate a valuation reset in the stock. It’s not the explosive growth company of yesteryear. However, Netflix has become a cash flowing machine. While it still must invest heavily in content to keep up in the industry, their service has become a staple in consumers’ streaming lineup.
Netflix stock has never looked cheap but at a TTM P/E of 35x and forward P/E of 30x, the stock looks like more of a bargain given it can still generate EPS growth of 20-25% going forward. I’d be a buyer of the stock on weakness.
Closing Bell
U.S. stocks surged Friday after Iran declared the Strait of Hormuz open, citing the Israel-Lebanon ceasefire. The S&P 500 crossed 7,100 for the first time, the Dow Jones Industrial Average climbed 851 points (1.8%), and the Nasdaq Composite gained 1.5%. Oil tumbled. West Texas Intermediate futures fell nearly 12% to $83.85/barrel as supply disruption fears eased.
Caveats remain: Iran’s Tasnim news agency reported that ships linked to “hostile nations” may be blocked, and the strait could close again if the U.S. navy blockade persists. Whether ships will face tolls is also unresolved.
Tech leads the week: The Roundhill Magnificent Seven ETF (MAGS+1.75%) is on pace for its third straight winning week, up over 8%. Tesla (TSLA+3.01%) surged 15% for the week; Microsoft (MSFT+0.60%) soared nearly 14%, its biggest weekly gain since 2007.
Truist Just Had Its Best Quarter in Years
Before the bell, Truist (TFC+2.31%) reported Q1 net income of $1.4 billion, or $1.09 per diluted share, up 25% year over year. Total revenue came in at $5.15 billion. The bank repurchased $1.1 billion in common shares and declared a $0.52 dividend. Shares have reversed pre-market trading losses. The stock is beating the S&P 500 by 7% since its February 2024 Hidden Gems rec. Fool contributing analyst Matt Frankel said last month that “as far as regional banks go, it’s probably my Number 1 or 2.”
The number that should stop you scrolling: Truist set a long-term ROTCE target of 16%–18%. For bank investors, ROTCE (Return on Average Tangible Common Equity) is one of the most watched profitability benchmarks. Truist’s current 13.8% is solid, and their 16% to 18% long-term target would put them in the upper tier of large regional banks if they get there.
Where the growth is coming from: Commercial loans led the way, rising 1.8% quarter over quarter, while investment banking and trading income surged 36% versus a year ago.