NFLX Stock: Beaten Up Enough to Buy?

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Netflix Shares Dip

NFLX stock got crushed this week, plunging by nearly 13% in a single day and 14 percent in a week. The drop, the largest since September, shaved almost 16 points off the company’s stock price. That’s enough to shake most traders out of their positions. The problem with NFLX stock is that while the market recognizes the fact that the online video provider does not have a profit problem, in the perverse climate of suspicion that has enveloped the name, doing well means next to nothing. Netflix (NFLX) actually had a stellar quarter as it doubled analyst expectations. The $41 billion market cap company announced Monday (April 18) that its Q116 EPS came in at $0.06 on $1.96 billion in revenue. Analysts had been modeling $0.03 per share on $1.97 billion in revenue.

Netflix also beat expectations on the all-important subscriber growth number, saying member growth in January through March was 6.74 million new net adds. Netflix’s forecast was for an addition of 6.1 million net subscribers. But what everyone was looking at was the forecast for member growth in the second-quarter that came in at 2 million new international subscriber, when most analysts were on average expecting 3.45 million. While that’s about 40% less than what analysts hoped for, history shows the streaming service, which has topped its subscription-growth forecast in each of the past six quarters, usually undershoots on its member forecasts. In Q115, the Los Gatos, California-based company made approximately the same forecast for new subscribers that it did Monday and ended up adding 3.28 million.

At current prices, shares of Netflix, currently trading at 342.50x FY2016 earnings estimates, and more than 94x FY2017 forecasts, are down by nearly 30% from their 52-week high of $133.27 set in December 7, 2015, and this raises the question if it’s time to buy the name or should you run away from it and its valuation concerns?

While no one can predict the direction of a stock on a tick by tick basis, one thing is sure, Netflix as a tech company is still strong enough fundamentally to continue growing at a healthy rate (next year EPS growth estimates stand at 264.30%, compared to the industry growth rates of 19.90%), and there’s still a lot to like long term about NFLX stock, which should drive its PPS back upward before long.

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