The Stock Market Is Historically Pricey: Here’s Why You Can Trust Netflix

Stocks keep climbing higher. That’s good news for investors, but as valuations stretch, it also means the risk of a market bubble forming are also getting higher.

The S&P 500 now trades at a price-to-earnings ratio of 28, well above its historical average, and other metrics like the CAPE ratio and the ratio of the S&P 500’s market cap to U.S. GDP are also elevated.

Plenty of stocks are vulnerable to a pullback, especially those that have boomed due to artificial intelligence fervor. But one stock that looks set to deliver no matter what happens is Netflix (NFLX 0.15%), the streaming giant.

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Why Netflix looks rock-solid

Netflix has moved a long way past the scare it faced in 2022 when it reported two straight quarters of subscriber declines. These days, the company is delivering strong growth across the board, and its business is much more resilient than it was a few years ago.

First, Netflix is truly diversified around the globe as the majority of its revenue comes from outside North America. That means its sensitivity to any one region is limited. And with the most popular subscription streaming platform on the planet, it also has a sticky product that consumers are going to be reluctant to cancel, even if they’re looking to cut back on their spending.

The company’s introduction of its ad-supported subscription in late 2022 has also opened the door to a whole new market. Management expects advertising revenue to double this year, and the ad-supported tier also gives Netflix a lower-cost tier to attract price-sensitive subscribers.

While the stock might look expensive with a price-to-earnings ratio of 55 as of this writing, Netflix has several avenues to continue growing, from raising prices to increasing its international subscriber reach and selling more ad inventory. This resilient business model means the company can deliver strong results, even if the stock market pulls back.