Netflix - a Value Trap or Value Buy - You Decide!
Oh. My. Goodness. Today's post is about Netflix. It's down 25% as I type. Yeeeeeesh!
So what happened? Well, bad earnings. Again. But here's the thing - this story gets more interesting. I don't own any Netflix, but I am watching it since the well known investor Bill Ackman plowed $1 billion into it last quarter. Oh, and by the way, OUCHY... He's now lost $250 million on that investment.
Kids, don't forget, it's not a loss until you sell 😜
60%... That's how much Netflix is down since its all-time highs a few months ago. Anyone who bought at those highs has been cut in half and then some. Investing and trading is not easy, and over the years, this always happens. Drawdowns, crashes, and bull markets and bear markets all come and go. The Netflix story fits all of that. Maybe that's why I felt like writing about it. I should also be totally clear: it's on my watchlist for a trade.
Let's dive in a little more, though, before deciding if we even should trade it.
I was pretty surprised to learn that Netflix's PE ratio is the lowest it's been in over 10 years. Netflix has a PE ratio in the 20s. If you look forward a year or so, its PE ratio is more like 18. At this point, you have to wonder, is Netflix a value investment? Wait, it's no longer a growth stock? Talk about the end of an era. I never thought I would see Netflix trading at a PE ratio like IBM.
The thing is, if Netflix can actually start churning out free cash flow at these levels, it really might be an epic value investment. It would also mean buyback time for them. Netflix has about $7 billion in cash. Surely they want to use some of this for their reinvestments, but also, at multi-year lows, a $2 billion buyback here is almost 2% of the company. Reed Hastings is a smart dude. He knows.
Let's keep going.
Netflix's market cap is approaching 100B again. This is its lowest valuation since 2019 and 2018. In Both instances, Netflix bounced and bounced rather quickly.
Hold up, Stef. Hold up. Are your really writing about potentially buying the dip in Netflix? No. Not at all. I am only thinking out loud. There is a bearish cash.
As most of us know, Netflix now has more competition than ever. There are more and more streaming platforms. In addition, is their content even that great? How does it compare to other companies? This is a determining factor as well. And, if it is the case, Netlfix is value trap. It will compete and compete, but no longer be a shiny growth stock.
Anyways, those are my thoughts. Streamlined and free to all of you. No subscription required.
I'll share an update if I actually trade this. In the meantime, my feet are up and I am watching in awe. The best entertainment is markets.
So what happened? Well, bad earnings. Again. But here's the thing - this story gets more interesting. I don't own any Netflix, but I am watching it since the well known investor Bill Ackman plowed $1 billion into it last quarter. Oh, and by the way, OUCHY... He's now lost $250 million on that investment.
Kids, don't forget, it's not a loss until you sell 😜
60%... That's how much Netflix is down since its all-time highs a few months ago. Anyone who bought at those highs has been cut in half and then some. Investing and trading is not easy, and over the years, this always happens. Drawdowns, crashes, and bull markets and bear markets all come and go. The Netflix story fits all of that. Maybe that's why I felt like writing about it. I should also be totally clear: it's on my watchlist for a trade.
Let's dive in a little more, though, before deciding if we even should trade it.
I was pretty surprised to learn that Netflix's PE ratio is the lowest it's been in over 10 years. Netflix has a PE ratio in the 20s. If you look forward a year or so, its PE ratio is more like 18. At this point, you have to wonder, is Netflix a value investment? Wait, it's no longer a growth stock? Talk about the end of an era. I never thought I would see Netflix trading at a PE ratio like IBM.
The thing is, if Netflix can actually start churning out free cash flow at these levels, it really might be an epic value investment. It would also mean buyback time for them. Netflix has about $7 billion in cash. Surely they want to use some of this for their reinvestments, but also, at multi-year lows, a $2 billion buyback here is almost 2% of the company. Reed Hastings is a smart dude. He knows.
Let's keep going.
Netflix's market cap is approaching 100B again. This is its lowest valuation since 2019 and 2018. In Both instances, Netflix bounced and bounced rather quickly.
Hold up, Stef. Hold up. Are your really writing about potentially buying the dip in Netflix? No. Not at all. I am only thinking out loud. There is a bearish cash.
As most of us know, Netflix now has more competition than ever. There are more and more streaming platforms. In addition, is their content even that great? How does it compare to other companies? This is a determining factor as well. And, if it is the case, Netlfix is value trap. It will compete and compete, but no longer be a shiny growth stock.
Anyways, those are my thoughts. Streamlined and free to all of you. No subscription required.
I'll share an update if I actually trade this. In the meantime, my feet are up and I am watching in awe. The best entertainment is markets.
Leading TradingView's educational videos on Youtube: youtube.com/channel/UCfOflihrkOKDQZ_ZKtF2VfQ
Read my blog here: scheplick.com
Follow me on X here: x.com/scheplick
Read my blog here: scheplick.com
Follow me on X here: x.com/scheplick
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.