Shares of Netflix Inc. (NASDAQ:NFLX) jumped as much as 5.6% higher on Wednesday, thanks to a glowing research note from Goldman Sachs. As of 3:50 p.m. EDT, the stock had seen more market-moving news before cooling down to a 4.1% gain.
The analyst report came with a Street-high price target of $490 per share, some 30% above current prices on the streaming video company. Analyst Heath Terry also reiterated his buy rating.
In greater detail, Terry argued that Netflix deserves a premium valuation compared to its entertainment industry peers. The stated target multiple of 65 times next year's EBITDA profits "largely reflects Netflix's long-term subscriber and margin potential," Terry said.
That's not even Terry's most optimistic estimate of Netflix's market worth.
"Looking at the share price's sensitivity to those long-term expectations for subscribers and normalized EBITDA margins, we see a wide range of outcomes that could potentially drive further upside to our current estimate," he wrote.
In other words, Terry wouldn't be surprised if strong subscriber additions and solid EBITDA profits drive Netflix shares even higher in the near term.
Whether the Goldman Sachs analyst is right or wrong, there's no denying that Netflix shares have been on a roll for a while. The stock has now gained 151% in 52 weeks, and 303% over three short years. Critics have often called it overvalued along the way, but massive subscriber growth keeps the good times rolling. The stock may be setting itself up for a correction at these nosebleed levels, but the long-term value remains huge.
And before I go, let me note that a short-lived rumor produced an equally temporary share-price spike near the middle of the day. TechRadar said that the company would bring video games to its subscription platform, causing Netflix shares to jump and GameStop (NYSE:GME) stock to fall as much as 7% lower. Netflix reached out to TechRadar with a correction, explaining that a separate company is producing a Stranger Things game, while Netflix brings an interactive video series set in the Minecraft world this fall.
"We don't have any plans to get into gaming," a Netflix representative said. So, both GameStop and Netflix returned to their pre-rumor prices.
Anders Bylund owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool owns shares of GameStop and has the following options: short July 2018 $14 calls on GameStop. The Motley Fool has a disclosure policy.