When you think about Wall Street or the stock market, it has many companies all trying fighting for the investors dollars. On Wall Street there are people with many theories of why a company should do well for the next few years and beyond. At some points, it is seemingly easier to see for example during the first part of COVID when governments around the world shut down the economy for health reasons. What did this mean, it meant people who often commuted a distance and time to work, were at home longer. What did they do? Some of it was entertainment or streaming services such as Netflix. The longer the stay at home, the more people turned to Netflix. The company was a growth stock and it was relatively easy to understand how and why they were growing.
In an article by Lisa Richwine of Reuters, even though Netflix has some of the most watched shows which allows it to have greater subscriptions and bring in advertising dollars, some people changed to not being at home all the time. The growth component of Netflix is changing, there will be other reasons to own Netflix. The company had projected 5.9 million new viewers, the actual was 2.5 million and the stock went down 20% erasing the gains from 2020.
You may still like Netflix and watched the shows, but you need to understand Wall Street has a herd mentality of what it likes and does not like. For the past few years it has been growth as number one element to the business strategy; now it is looking for profitable companies and in a few years may love value companies. Wall Street does and will change.
Linking to dividend paying companies, if you tend to buy profitable companies (and can pay a dividend) they tend to trade at higher multiples because they can profits or higher EPS multiple. Wall Street can change but eventually the street will like profitable companies over growth companies because the number one rule is still try not to lose money.
There are more questions than answers, till the next time – to raising questions.