Netflix (NFLX +1.74%) stock is down 40% over the last year, just 8% above the recent 52-week low of $65.10. Each of the last five earnings reports was followed by deep price drops over the next couple of days. And investors aren't quietly walking away. They are running for the exits, as average trading volumes have spiked in recent weeks.
The wisdom of the crowd says "stay away from Netflix stock." Is that good advice, or is Netflix actually a good buy right now?
NASDAQ: NFLX
Key Data Points
The bear case
Netflix investors are concerned about slowing revenue growth, stagnant viewing-hours metrics, the departure of co-founder Reed Hastings, and fewer engagement reports. The unpredictable economy isn't helping, and the next report will surely show a significant financial impact from July's FIFA World Cup. Netflix highlighted the tournament as a competitive challenge in the Q2 report, and the footballers sure put on a show.
In the grand scheme, it all makes sense. Netflix shares traded at an average of 47 times trailing earnings and 52 times free cash flow in 2024 and 2025. That's roughly double Walt Disney's multiples over the same period, while NBCUniversal parent Comcast traded at single-digit P/E and P/FCF valuations.
Maybe it was due for a correction.
Image source: The Motley Fool.
Bullish rebuttal
I think the price drops have gone too far, though.
Netflix's financials have some weak spots, but there are plenty of strong points, too. The company is a cash machine with industry-leading profit margins and returns on invested capital. The company explicitly stopped chasing maximum subscriber growth at any cost several years ago, and now prefers profitable growth.
"Our primary financial metrics are revenue for growth and operating margin for profitability," according to the Q2 report. "Our goal is to sustain healthy revenue growth, expand operating profit and margin, and deliver growing free cash flow."
Netflix is crushing the competition in these core metrics. The company is doing exactly what it wants, and the cash is rolling in despite investor complaints and plunging stock prices.
And the stock is on sale. Netflix might fall even further, but it's destined for another strong rebound eventually. Right now, you can pick up Netflix shares at 22 times earnings and 26 times free cash flow. I call it a bargain.
