Netflix shares are taking a hit, but they still trade at a steep P/E ratio.
This is a wonderful business, so investors should watch closely and wait for a more attractive entry point.
Netflix (NASDAQ: NFLX) deserves credit for spearheading the world's shift away from cable TV and toward streaming. It's the leader in that market, with a global presence, massive user base, pricing power, and sizable profits.
Should you invest $100 in this dominant streaming stock, which trades 29% below its peak (as of Dec. 12), right now?
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Image source: Netflix.
This stock has performed exceptionally well in the past, soaring 701% over the trailing-10-year period. This is despite the fact that shares have dropped considerably from their all-time high. Netflix missed Wall Street estimates when it reported Q3 financials. And the market looks to be concerned about the company's proposed takeover of Warner Bros. Discovery.
Even after the dip, the stock is expensive. It trades at a price-to-earnings ratio of 40. This is the main reason investors shouldn't add Netflix to their portfolios right now.
This doesn't mean investors should completely forget about Netflix. This is a high-quality company. It has a cost advantage, which helps it collect lots of net income and free cash flow while it also spends aggressively on content. And there is still meaningful growth potential, particularly in international markets.
It's best to watch the stock and wait for a better entry point.
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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.