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Last week I wrote all about Terry Smith changing his strategy.
He thinks that the market has changed and become much more driven by momentum.
Netflix and PayPal might be good examples of this - let’s show you why.
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Netflix
Netflix is down nearly 50% this year after reporting earning last week.
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Based on the stock price, you’d think that something was seriously wrong with the business.
But since 2017, Netflix has been a consistent and impressive grower.
Revenue has grown 17% per year
EPS has grown 46% per year
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But Netflix’s stock didn’t always go down.
From June 2022 through June 2025, Netflix gained nearly 600%.
Remember the FAANG era?
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During that same period:
Revenue grew about 11% per year
EPS grew about 27% per year
Excellent results.
But nowhere close to explaining a 600% return.
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What does?
Valuation.
Netflix's P/E expanded from roughly 15x earnings to 60x.
The business improved, but investors also became much more optimistic.