Netflix Stock Tanked Today. Should You Buy the Dip?
Key Points
Investors gave a thumbs down to Netflix earnings after guidance was unchanged.
One Wall Street analyst thinks the business showed the stock should be worth more, not less.
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Netflix (NASDAQ: NFLX) released its first quarterly report since the drama surrounding the acquisition of Warner Bros. Discovery ended with Netflix declining to raise its bid and receiving a $2.8 billion payout instead.
Shares tanked even after a solid quarter, as investors were hoping for better forward guidance. One Wall Street analyst thinks today's move is a great buying opportunity for investors.
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Business as usual
The Warner Bros. competition was a distraction for investors. The stock plunged from about $120 to $75 per share as that process was playing out. It recovered much of that before last night's earnings announcement. After a strong earnings report, investors wanted to see the company boost guidance for this year. Today's stock reaction came because management failed to do so.
Netflix also trades at a high multiple. Even after today's drop, it is valued at a forward price-to-earnings ratio of about 31. But that is well below the three-year average of 37. Of course, that type of multiple means investors expect continued strong growth.
Revenue grew 16% in Q1, and the company will need to maintain or even raise that level moving forward. Seaport Research Partners analyst David Joyce thinks today's drop is a buying opportunity as growth continues even without Warner Bros. He raised his price target from $115 to $119 per share after the report, according to Barron's.
Just as the acquisition drama gave investors a good chance to buy Netflix stock, today's move could offer a similar opportunity if the business continues to fire on all cylinders.
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Howard Smith has positions in Netflix. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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