The share price chart of streaming service Netflix Inc. (NASDAQ:NFLX) more closely resembles the trajectory of a good old fashioned roller coaster than a slow and steady parabola most investors like to see.
The technology giant has seen its share price increase by more than 50% since a December dip which hammered investors amid widespread concern a bear market, and potentially a recession, were on the horizon.
This rapid rise in the company's valuation appears to have much less to do with fundamentals than changes in how investors factored in growth assumptions into their financial models. After all, a significant driver behind the decline in Netflix's share price late last year was due to growth concerns among many with respect to the ability of Netflix to continue to grow its subscriber base at a meaningful clip while simultaneously increasing rates for subscribers.
Netflix's management team appears to be growing cautious of being too aggressive with its guidance moving forward, as some analysts have noted.
The company has narrowly missed growth expectations in the past, and indications that such a trend may continue into the future had spooked some momentum investors who did not want to stick around to see how badly Mr. Market would treat Netflix.
For those who believe Netflix has turned the corner and all is well, I would suggest taking a look at the volatility this company is likely to grace you with before making an investment.
Invest wisely, my friends.
