Down 39%, Should You Buy the Dip in Netflix Stock?
Key Points
Netflix walked away from an $82.7 billion bid for Warner Bros. Discovery and passed on buying Roku, avoiding the debt its rivals took on.
The latest sell-off followed a decision to publish engagement data annually instead of twice a year, starting in 2027.
The stock looks like a bargain at 23.4 times trailing earnings today, down from roughly 47 times in recent years.
Every media giant is being dramatic this year. What else is new, right?
Comcast is setting NBCUniversal loose. Lionsgate is standing on the corner of Hollywood and Vine with a cardboard sign. Paramount Skydance won a $111 billion bidding war for Warner Bros. Discovery (NASDAQ: WBD) and immediately inherited a dozen skeptical state attorneys general. Even Roku (NASDAQ: ROKU) got a buyout proposal from Fox.
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Netflix (NASDAQ: NFLX) sighed, refinanced $1 billion of debt, and went back to work. Closing at $74.21 on Aug. 12, the stock is down 39.4% over the past 52 weeks. It's also just 14% above the 52-week low.
There's a big gap between what Netflix is doing and where the stock is going.
Image source: The Motley Fool.
What's in that gap?
Netflix will publish its engagement report once a year instead of twice, starting in 2027. That is a scheduling change. Shares fell as much as 12% on the news, which suggests the market was already looking for a reason to sell. Trading volume has been elevated since the Warner Bros. drama started in December.
None of that changes the cash-generating engine. Netflix shifted from maximum subscriber growth to profitable growth years ago, and the current numbers reflect exactly that priority.
Netflix sports 31.1% returns on invested capital and $13.7 billion in trailing net income on $48.8 billion in sales. Trailing earnings are up 34.8% over the past year. Revenue rose 17.6% on the same basis.
Fiscal discipline for the win
Netflix traded around 47 times trailing earnings across 2024 and 2025. Today, it trades at 23.4 times trailing earnings, 19.5 times forward estimates, and 27.7 times free cash flow, with a PEG ratio of 0.89. The average analyst price target of $94.20 implies 26.9% upside.
Management keeps declining to do anything expensive. Netflix bid $82.7 billion for Warner Bros. Discovery, then walked when the number got silly. It looked at buying Roku back and passed.
Instead, the company is quietly wiring AI production tools into about 300 titles. Games and the real-world Netflix House attraction are growing. Meanwhile, Netflix still expects to generate $12.5 billion of free cash flow in 2026.
A 39.4% haircut on a business growing earnings by 34.8% looks like an opportunity, not a warning. Netflix stock looks tempting in this dip.
Anders Bylund has positions in Netflix. The Motley Fool has positions in and recommends Netflix, Roku, and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.