This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
As of June 20, the S&P 500 index has generated a total return of 2% in 2025. After a difficult start to the year, the market has rallied in remarkable fashion to get in positive territory. A fresh all-time high could be achieved in the near future.
While the broad index is in the green this year, Netflix (NASDAQ: NFLX) has climbed at a much better clip. The streaming stock is up an impressive 38% in 2025. Trade negotiations, economic uncertainty, and geopolitical tensions continue to happen in the background, but seemingly have no effect on this business and its shareholders.
Should you buy, sell, or hold Netflix stock in 2025?
Why you should buy and/or hold Netflix stock
Netflix is the leader in the streaming arena, having established a powerful position in the global media and entertainment industry. It brought in $10.5 billion in revenue in the first quarter. As of year-end 2024, it had 302 million subscribers. And according to data from Nielsen, 7.5% of all daily TV viewing time in the U.S. went to Netflix.
Management never rests on its laurels. It's always appearing to be playing offense. The company is finding new ways to bring on subscribers, whether that means cracking down on those who share passwords, launching a very successful ad-supported tier, or getting into live sports and events. Netflix has tremendous brand strength, and the leadership team thinks there are hundreds of millions of people who can still become members.
Investors should buy this stock today is if they believe Netflix will keep generating strong financial results -- and that's not a reach. According to Wall Street consensus analyst estimates, the company's revenue and earnings per share (EPS) are projected to increase at compound annual rates of 12.3% and 23.4%, respectively, between 2024 and 2027.
The same reasoning applies to existing shareholders, particularly those sitting on huge gains thanks to their Netflix positions. If you have conviction that the business will continue to perform well over the next five years and beyond, then there is no reason to sell the stock. But that's if you don't believe the current valuation is a stretch (more on this below).
A richer valuation doesn't automatically mean it's time to dump your holding, especially if the company is in tremendous shape.
Why it's time to sell
The case to sell Netflix stock also makes complete sense. I see nothing wrong with shareholders taking some profits off the table. This might mean it's time to lower the position size Netflix commands in your portfolio to something that's a bit more comfortable. That's an even smarter move if there are other, more attractive opportunities to allocate capital to.
Another obvious reason to sell is the valuation. Netflix trades at a price-to-earnings (P/E) ratio of 58.2 right now. That's a 147% premium to the S&P 500 index. To be clear, this is an elite business we're dealing with here. But it's a stretch in my mind to think that it commands that type of elevated valuation. There's a much greater likelihood that the P/E multiple will be much lower five years from now than that it will stay the same or go higher.
The market has kept rewarding Netflix with each impressive quarterly financial report, even though the valuation has looked steep. I just think there is absolutely no margin of safety left, and it might be time to switch gears.
Unsurprisingly, I personally would not be a buyer of Netflix stock at the current valuation. Between holding and selling, I lean toward the latter. For those who care less about valuation and more about owning a top-notch enterprise, I can understand why they would have a different perspective.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
