The world's leading entertainment streaming company Netflix Inc. (NFLX), in Los Gatos, Calif., offers TV shows, documentaries, and feature films in various genres and languages to 214 million paid subscribers in more than 190 countries. Because of its broad market reach and original production capacity, the company continues to hold the title of "most used streaming platform" globally.

However, the stock declined 21.8% in price on Friday after the company reported sluggish subscriber growth in its fiscal fourth-quarter earnings release. This was NFLX's worst day since July 25, 2012, when its shares declined 25%. It was also the stock's worst week since July 27, 2012, when it plummeted almost 28% in price.

In addition, despite topping consensus estimates for user numbers and earnings for the quarter, its slowing growth due to increasing competition has raised investors' concerns regarding its near-term prospects. Closing its last trading session at $397.50, NFLX is currently trading below its 52-week high of $700.99, which it hit on Nov. 17, 2021.

Here is what could shape NFLX's performance in the near term:

Increasing Competition

NFLX has a strong foothold in the streaming services industry and offers its members a wide variety of TV shows and films. However, the company faces stiff competition from major players such as Disney+, Amazon.com, Inc.'s (AMZN) Prime Video, and others. NFLX admitted in its fourth-quarter earnings that industry-wide competition was affecting its growth. The company said, "while this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched."

Premium Valuation

In terms of forward EV/Sales, the stock is currently trading at 5.63x, which is 134% higher than the 2.41x industry average. Also, its 8.97x forward Price/Book is 235.2% higher than the 2.68x industry average. Furthermore, NFLX's 5.28x forward Price/Sales is 207.6% higher than the 1.72x industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the 33 Wall Street analysts that rated NFLX, 16 rated it Buy, and 14 rated it Hold. The 12-month median price target of $531.15 indicates a 33.6% potential upside. The price targets range from a low of $342.00 to a high of $750.00.

POWR Ratings Reflect Uncertainty

NFLX has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NFLX has a C grade for Value and Momentum. The company's higher-than-industry valuation is in sync with the Value grade. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $603.63 and $565.16, respectively, which is consistent with the Momentum grade.

Of the 77 stocks in the F-rated Internet industry, NFLX is ranked #12.

Beyond what I have stated above, one can view NFLX ratings for Stability, Quality, Growth, and Sentiment here.

Bottom Line

NFLX is among the top streaming platforms worldwide with a vast user base. However, the stock has slumped 34.3% in price over the past month and 31.5% over the past year. In addition, the company's slowing growth in its last reported quarter due to rising industry-wide competition could further affect its price performance in the near term. So, we think it could be wise to wait before scooping up its shares.

How Does Netflix Inc. (NFLX) Stack Up Against its Peers?

While NFLX has an overall C rating, one might want to consider its industry peers, Travelzoo (TZOO), which has an overall A (Strong Buy) rating, and Yelp Inc. (YELP), and Alphabet Inc. (GOOGL), which have an overall B (Buy) rating.

NFLX shares fell $12.50 (-3.14%) in premarket trading Monday. Year-to-date, NFLX has declined -36.67%, versus a -8.59% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

More...