Up Nearly 20% From Its 52-Week Low, Is Netflix Stock Set to Rally Even Higher?
When Netflix (NFLX +4.17%) reported earnings last month, investors weren’t impressed. They dumped the stock, which was already struggling, causing it to hit a new 52-week low of $65.08. It seemed as though the company, despite its solid growth over the years, could do nothing to convince investors that it was worth investing in. Its tailspin seemed endless.
But with beaten-down stocks, at some point, they become too cheap to pass up. Investors load up on them at discounted prices, which can create a snowball effect, driving their share prices higher, leading to a rally. That appears to be happening with Netflix of late, as on Thursday, it was trading at around $77 — which is 18% higher than the low it reached in July.
Can the streaming stock still be a good buy right now? Let’s find out.
Image source: Getty Images.
Did the market overreact to Netflix’s latest earnings report?
When a company reports earnings that don’t meet expectations, the market tends to act quickly. Sell first, think and analyze later. When Netflix reported its second-quarter earnings on July 16, that may have been what happened. The company delivered a beat on the bottom line but slightly missed on revenue.
Its guidance was also not strong enough for growth investors. But with 12% growth expected for the third quarter, it’s not a significant slowdown from the 13% revenue growth it posted for the second quarter.
Nonetheless, the stock would end up falling more than 7% the following day and hit a new 52-week low along the way. But for the terrific margins it generates and double-digit growth still expected, the stock arguably didn’t warrant trading at such low levels. Even today, the stock doesn’t appear too expensive, trading at a price-to-earnings multiple of 24, which is lower than the S&P 500 average of 26.
Today’s Change
(4.17%) $3.10
Current Price
$77.31
Key Data Points
Market Cap
Day’s Range
$75.44 – $77.67
52wk Range
$65.08 – $126.71
Volume
25.4M
Avg Vol
42.6M
Gross Margin
49.53%
Is Netflix stock a good buy right now?
Year-to-date, Netflix’s stock is still down around 18%. With the company continuing to expect double-digit growth, I think its valuation is more than justified, and it could conceivably have much more room to rise, particularly in the long run. The business has excellent fundamentals and has shown it can perform well even as competition has intensified in the streaming industry.
For long-term growth investors, Netflix can be a solid stock to buy right now, as it still looks undervalued.
