Netflix (NFLX 0.41%) is always a dynamic topic of conversation. The company's original content plays a defining role in modern culture -- not just in the U.S. but worldwide. If people aren't talking about the latest Netflix hit, or the studio's chances in the award show season, they're wondering when the next season of Squid Game is coming or complaining that the Kissing Booth movie series is wearing out its welcome.
The company's stock, on the other hand, isn't always the hottest subject for water cooler chats. Netflix shares only rose 11.4% in 2021, missing out on a 26.9% gain for the S&P 500 market index. Headlines and Google searches about Netflix stock dwindled during that uninspiring period.
That quiet period ended with a bang two weeks ago. Some might say that Netflix's stock chart looks scary right now, but I call it an exciting opportunity. And the market action most certainly turned up the volume on the Netflix chatterbox. Everybody is talking about the stock again.
Image source: Getty Images.
What happened?
Netflix reported fourth-quarter results on January 20. Top-line sales and subscriber additions came in just below management's guidance and Wall Street's estimates, while earnings beat expectations by a wide margin. However, management set up a really low guidance bar for customer additions in the first quarter. Adding just 2.5 million net new subscribers would meet the official target but it would also be the slowest quarterly period of subscriber growth since Netflix started reporting digital streaming results in 2012.
Investors sat up, took notice, and started slamming their "sell" buttons. Many analysts were quick to fan the flames. Four market days later, Netflix shares closed the trading session 29.2% below the pre-earnings level. The panic selling sent Netflix's daily trading to the highest volumes seen in the last five years:
NFLX Volume data by YCharts
Isn't that bad news?
That's how Netflix grabbed investors' attention again after a long, slow year of largely disappointing stock returns. Subscriber growth is headed for one disappointing quarter, assuming that Netflix's projections are on target this time. However, Netflix isn't sprinting for some all-important goal line in the first quarter of 2022, and a short period of slow growth will look like a minor speed bump when long-term investors look back at this year from the future. There's a proverb for sort of thing, I'm sure.
With great power comes... no, wait. Let me try again.
With a big dip in the stock chart comes lower buy-in prices. Doesn't roll off the tongue quite as nicely as Spider-Man's classic aphorism, but it's still true. At the same time, Netflix's earnings have trended upward over the last five years, including another uptick in the contentious fourth-quarter report. As an upshot of these clashing trends -- a falling stock price and rising earnings -- Netflix shares now trade at a price-to earnings ratio of just 36 times trailing earnings. That's below surefire value stocks such as Walmart (WMT 1.60%) at 39 times earnings and Visa (V +0.17%) at 40 times.
NFLX Normalized PE Ratio data by YCharts
Is Netflix a buy nowadays?
You can call Netflix a value stock with a straight face right now. That's new.
And Netflix is a value stock with oversized growth engines. Don't forget that the vast majority of media-viewing still takes place on traditional, linear television channels today. Netflix's management estimates that the company commands less than 10% of total TV viewing in the domestic market, and even smaller slices in less mature markets around the world. This growth story is still in its early innings, and a temporary stumble amid the uncertainty of a global health crisis is not the end of the line.
So you're looking at a business with tons of growth ahead of it, whose stock took a beating when a single quarter's guidance pointed a bit lower than expected. Moreover, it's a growth stock trading at valuation ratios below deep-value paragons like Visa and Walmart. I don't know how many more ways I can say this, but Netflix stock is a fantastic buy right now. You should consider grabbing a few shares while the discount lasts.
