1 Incredible Reason to Buy Netflix Stock Before It Reports Earnings on July 16
Key Points
Netflix stock has fallen by more than 40% over the past year.
Outside of the market falling sharply in 2022, Netflix has never had a lower P/E ratio than it does right now.
The headwinds are there, but there's a solid valuation argument to be made for the stock right now.
- 10 stocks we like better than Netflix ›
There are a couple of good reasons to consider buying Netflix (NASDAQ: NFLX) ahead of this week's second-quarter financial update. It continues to operate the world's leading premium streaming service. More than just a stateside phenomenon, it now generates more than half of its revenue internationally.
Netflix has grown despite initiating modest membership price hikes almost every year. It uses its economies of scale to spend more on content than its smaller rivals, knowing it can divide that over its global audience of more than 325 million homes. However, the best reason to own Netflix ahead of Thursday afternoon's reveal of fresh financials is its stock chart.
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Image source: Getty Images.
Starting lines matter
As the owner of one of the more surprising performance charts, Netflix shares have plummeted 42% over the past year. Netflix stock is now trading at 24 times trailing earnings, its lowest multiple ever outside the market's overall sell-off in 2022.
Trailing revenue and earnings have never been higher, with double-digit percentage growth on both ends of the income statement. Consolidation in the industry -- even with Netflix failing to gobble up any of the smaller rivals that have hit the market -- should benefit the platform. Fewer players make it easier to avoid price wars from cutthroat competition.
The caveats are real. Netflix took a hit after its previous quarterly update. Revenue growth is slowing, and there are some near-term margin challenges. However, Netflix has been a volatile stock in its two dozen years of trading. Until now, it has recovered from every steep correction.
It also helps that market expectations are low when a company is out of favor heading into earnings season. Netflix still has a lot to prove, but as the leading provider of premium streaming video entertainment, it knows how to fashion a Hollywood ending when it needs it the most.
Should you buy stock in Netflix right now?
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Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
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