Is Netflix a Buy?

Investors are forcing a sell-off of Netflix (NASDAQ: NFLX) shares, which are 38% below their 52-week high (as of Feb. 2). The business, historically a monster winner for its shareholders, is in the process of taking over film and TV studios, HBO Max, and the content catalog of Warner Bros. Discovery at an enterprise value of $82.7 billion.

This is a lot to digest, and the market clearly has its concerns. Is this top streaming stock a buy right now?

Image source: Netflix.

The valuation reflects the market's concern

It seems Netflix is never trading at a compelling valuation. That's usually the case with tech-forward, high-growth companies. With the recent dip, though, investors who have been on the sidelines watching might now be inclined to make a move. Shares sell at a price-to-earnings ratio of 32.9. That's a historically cheap level for Netflix.

However, the pending transaction with Warner Bros. Discovery adds a lot of uncertainty to the situation, uncertainty that wasn't a contributing factor even three months ago. The fact that Netflix could take on $52 billion in debt to close the deal is a concern, not to mention the risks of successfully integrating two sizable companies, achieving targeted cost synergies, and maintaining each brand's competitive strengths.

Netflix has succeeded in the past thanks to organic growth. It has avoided large transactions. So, it can be difficult for investors to assess how things will play out in the future.

Investors have a lot to think about

But there are many factors to look at that will make investors bullish on this business. Netflix is an innovative pioneer in the streaming industry, with a strong brand and unmatched mindshare among viewers. That has led to fantastic revenue growth over the years, as the company is constantly trying new things, like advertising, live sports and events, gaming, and podcasts.

Netflix has 325 million members and collected $45 billion in 2025 revenue. This gives it tremendous scale that translates to a cost advantage. The result is huge profits, exemplified by a fourth-quarter operating margin of 24.5%. That's all good to think about. And they are reasons why the company should be on your radar.

Since the valuation has come down considerably in the past seven or so months, I can understand why investors might want to buy the stock right now. That perspective makes sense, but you must be comfortable with how much uncertainty the Warner Bros. Discovery deal adds to the business. If this is the approach you're going to take, it's critical to pay attention to any new developments, as this can affect the Netflix thesis.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.