Netflix Stock: Should You Buy the Post-Earnings Dip?

Streaming giant Netflix (NFLX -2.96%) released its latest quarterly results last week, and suffice to say they weren’t good enough to inspire a turnaround in its stock price. Netflix’s stock, which was already in difficulty before the results were published, fell further after the publication of its latest figures.

Now down about 30% year to date and trading at levels it hasn’t reached in over two years, its valuation may look attractive. Should investors consider buying streaming stocks on weakness, or could there be more sell-offs ahead for Netflix?

Image source: Getty Images.

Why did Netflix stock fall after earnings?

On October 20, Netflix released its third quarter results, covering the three months ending September 30. It met revenue expectations, with revenue totaling about $12.9 billion and earnings per share of 87 cents above analysts’ expectations of 82 cents.

Wall Street’s biggest concern appears to be Netflix’s forecasts, as the company’s outlook is somewhat disappointing, with annual revenue forecast at $51.1 billion. That’s a 13% year-over-year increase, but it’s at the lower end of Netflix’s previously set range, and analysts’ expectations were for $51.2 billion.

In short, Netflix’s numbers weren’t bad last quarter; they simply didn’t do enough to allay concerns about its slowing growth, and so the stock has fallen since then. The drop wasn’t massive, but Netflix stock nonetheless reached new lows.

Has Netflix stock become a bargain?

Netflix has lost more than 40% of its value over the past 12 months and is now a cheap stock relative to the market. S&P500. The stock trades at a forward price-to-earnings (P/E) multiple of just 17, based on analyst expectations for its earnings for the coming year. For comparison, the average stock in the broad index trades at a forward P/E of 19.

While there appear to be some challenges ahead for Netflix and proving to investors that it can keep its consumers engaged, I think the company is still in good shape. Paying such a low multiple for a stock that’s growing double-digits, with Netflix’s excellent fundamentals, may make it an attractive buy right now. While there doesn’t appear to be any near-term catalyst to turn the stock around, patient investors can earn significant returns by buying and holding, given its significantly discounted valuation.