Chapter 4 spends quite a bit of time demonstrating the reverse engineering technique with Netflix (NFLX) in 2022. That provides an opportunity to see how it works when stock prices change significantly, for Netflix’s price dropped from $597.37 in January of that year to $343.75 in March, and then to $175.50 in June. The corresponding implied growth rates at these dates were 6.33%, 4.71%, and 0.83%. With Netflix facing severe competition, the January growth rate of 6.33% looked a bit pricey while June 0.83% rate looked attractive. More analysis is needed to confirm those suspicions, of course, but what happened subsequently?
In January 23, 2024, on the announcement of fiscal-year 2023 results, the stock price stood at $492.19, edging back to the January 2022 price and an increase of 180% over the June 2022 price. Nice pickings. The firm had added an estimated 13.1 million subscribers in the 4th quarter of 2023 and 8.8 million in the 3rd quarter, ending the year with 260.28 million subscribers. On January 27, 2025 when the 2024 10-K was filed, the stock price stood at $971.89. Too pricey?
You might want to track it, getting the market’s pricing of growth and implied growth rate.