Barron’s has done it again. The popular investment magazine has become increasingly prone to making bold, eye-popping predictions about the future of certain stocks or the market itself. Its latest is a real doozy, forecasting that Neftlix (NFLX) could fall 50% in the next three years. For regular Barron’s readers, the gloomy prediction about NFLX stock should look pretty familiar.
Just under two years ago, in its September 14, 2015 issue, Barron’s claimed that Alibaba (BABA) could fall 50% further. It’s up 146% since then.
That same month, the magazine predicted that “Stocks Could Rally More Than 10% By Year End.” They were half right: the S&P 500 rallied just over 5% from the publication date until the end of 2015, though the market subsequently crashed in January and February of 2016.
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Believe it or not, my point isn’t to single out or shame Barron’s. Bold market predictions are common practice in the investment world these days; Barron’s is simply one of the higher-profile—and more trusted—publications that does it. To stand out in today’s crowded financial news space, you have to be bold to attract readers. Those types of articles can be interesting to read, but they should also be taken with an entire teaspoon of salt.
Don’t change the way you invest based on market predictions and guesses. Invest based on what’s actually happening. And what’s actually happening with NFLX stock is that it’s up 38% year to date. Yes, the stock has been roughed up a bit of late, with Disney’s (DIS) decision to pull its content from the online streaming service beginning in 2019 being the latest blow.
Despite its recent struggles, NFLX stock still trades comfortably above its 50-day moving average, and the long-term trajectory remains decidedly up. Take a look.
Meanwhile, the company continues to chug along financially, growing sales by 32% in the second quarter and earnings by 50%. For the year, analysts expect Netflix’s EPS to nearly triple, with 30% sales growth.
That’s what actually happening with NFLX right now. And that’s more relevant than what one publication thinks could happen to the stock.
There’s always an element of speculation to investing. You buy stocks that you think will rise over time in part because you like their potential for earnings or revenue growth, or perhaps they have a revolutionary new product in the hopper. But you also invest based on what has already happened—companies that have been growing earnings and/or revenues, that have good charts, whose new products have been getting rave reviews. Otherwise, you’re investing based on pure speculation.
That’s what you would be doing if you decided to sell Netflix stock based on this Barron’s headline. While the magazine’s ominous warnings about NFLX could be warranted—mounting debt, high costs and a high valuation are among the reasons Barron’s lists in its bear case against the stock—you should not interpret them as a death sentence for NFLX stock.
Could NFLX stock fall 50% by 2020? Possibly. But the chart, the sales and the earnings paint a very different picture. And right now, that’s a clearer picture than a headline speculating about what could happen to one of the market’s great growth stocks three years from now.
