Any successful company will eventually struggle with slowing demand. Those that are successful are able to turn around a declining situation. But many “turnaround” stories are just that – stories.
It’s crucial for investors to be able to separate true turnarounds from talk of improvement. That’s why investors should wait for trends such as improving profit margins or improved earnings before waiting to invest in such a story.
One surprising story from 2022 has been that of Netflix (NFLX). The company struggled in recent years as other streaming services increased competition. Netflix even saw a real decline in user growth for the first time in its history.
But things are improving, and even those who have been bearish have started to notice. Subscriber numbers have stabilized, and with the stock price cut in half last year, shares look reasonably valued relative to the company’s cash flows. With earnings up 6 percent in a slowing economy,
Action to take: Investors can consider shares at today’s prices as reasonably valued, and can use any drop in shares to add to that position.
For traders, shares will likely keep trending higher off their June lows. The July $260 calls, last going for about $24.75, offer mid-double-digit returns on a continued move higher in the stock in the first half of this year.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.