The market is a mess. April has already seen the S&P 500 tumble nearly 6%, and most high-flying tech names are getting dragged down with it. Except one. Netflix (NASDAQ: NFLX) is up a jaw-dropping 11.6% this month. Yes, you read that right. While the broader market is coughing up gains, Netflix is popping champagne.
And this kind of divergence is exactly why we don’t bet the farm on any one stock. Because when single names zig while everything else zags, the upside can be thrilling – but the risk? Blistering. That’s why our High-Quality portfolio, designed to sidestep these exact stock-specific shocks, has outperformed the S&P 500 and achieved returns greater than 91% since inception
So what’s going on? Let’s dig in and check whether this red-hot rally is actually justified or is it about to hit the pause button?
The Euphoria: What’s Fueling Netflix’s Breakout?
Call it earnings magic or just really good timing, but Netflix did well in Q1 2025. Here are the numbers that got Wall Street giddy:
- Revenue came in at $10.54 billion, up almost 13% YoY
- Operating margin hit 31.8%, up from 28.1% last year
- EPS grew nearly 25%
And all this as the rest of tech stumbles around blaming tariffs and macro gloom. Netflix? They’re cruising.
The company pulled this off by raising prices (again), expanding its advertising tier with in-house tech, and – believe it or not – finally making live content and sports work.
This is the part where people start whispering about Netflix being a “tariff-proof haven.” They’re not entirely wrong – Netflix doesn’t sell sneakers or iPhones. No China imports. No tariff drama. Just subscription dollars rolling in.
But Let’s Talk Valuation – Because It’s Lofty
Let’s not sugarcoat this: Netflix stock is expensive at a P/E ratio of 45 and P/EBIT ratio of just under 40. That’s certainly above where most value investors feel cozy. If you are saying – “well that’s fine, Netflix has been a high PE stock for years” – you’d be half right. Think again. In 2022 when inflation hit – guess where Netflix P/E landed? It hit rock bottom of 15x! That’s even lower than what most mature companies get. Simply put – there is ample room for multiple contraction. When that happens, stocks crater.
PE is a sensitive metric. It is fueled by expectations. Sure things look good for now because Netflix is executing. Margins are up. Growth is still good. And it’s one of the few mega-cap names that doesn’t have to worry about tariffs, supply chains, or China risk.
Investors are looking for safe havens in a shaky macro environment. Right now, Netflix is playing the part equivalent to gold. But you can’t ignore the price tag. This is a stock that assumes Netflix will keep crushing it. Is that possible? Sure. Is it guaranteed? Absolutely not. And here is some data as caution:
- Sure 13% growth on a subscription business that tends to be sticky sounds good – but guess what! That’s actually lower than 16% growth in Q1 2024 and 15.6% growth for the entire last year. Know this – the growth is not accelerating!
- Netflix has stopped reporting subscriber count. That can only mean one thing – it does not see substantial subscriber growth going forward.
Bottom Line
Netflix is a rare beast in today’s market: a growth stock that’s not just surviving but thriving. But thriving doesn’t come cheap. With a P/E of 45 and little room for missteps, Netflix may be one earnings miss or subscriber slip away from a sharp reality check. The risk here isn’t about Netflix falling apart – it’s about the market’s sky-high expectations crashing down to earth.
And that’s the problem with chasing single-stock hype: when they win, it’s exhilarating. But when they stumble? Painful. Considering multiples in context of growth is one of the factors we look at in Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.