Netflix Has Plummeted Over the Past Year and Just Dropped Again on Earnings. At 22 Times Profits, Is It a Buy?

TV specialist Netflix (NASDAQ: NFLX) reported its second-quarter results on Thursday, and the report itself was uneventful. Revenue rose 13% year over year to $12.6 billion, matching management's forecast, and operating margin came in slightly ahead of plan.

Shares still fell about 7% on Friday, to $68.95 -- within a few dollars of their 52-week low.

The drop extends a miserable stretch. Netflix stock has lost more than 40% of its value over the past year, and it's down about 46% from its 52-week high of $126.71.

The sell-off has also produced a valuation that would have seemed unthinkable a year ago. The streaming giant trades at about 22 times earnings.

So, is the beaten-down growth stock finally a bargain?

Image source: Netflix.

A solid quarter by almost every measure

There wasn't much to criticize in the report. Second-quarter revenue growth was driven primarily by membership growth, pricing, and increased ad revenue, and the company delivered double-digit gains in every region. Operating income rose 11% year over year to $4.2 billion, though the company's operating margin of 33.4% narrowed slightly from 34.1% in the second quarter of 2025. And earnings per share climbed 11% year over year to $0.80.

The full-year outlook is intact, too. Management narrowed its 2026 revenue forecast to a range of $51.0 billion to $51.4 billion, representing 13% to 14% growth, and it kept its operating margin target of 31.5%, up from 29.5% in 2025.

That forecast implies operating income growth of more than 20% this year. Netflix also still expects a rough doubling of its advertising revenue in 2026, to about $3 billion.

And the company is notably returning cash to shareholders at a record pace. Netflix repurchased $4.7 billion of its stock in the second quarter (its largest quarter of buybacks ever), and it still has $27.1 billion of repurchase capacity after its board added $25 billion to the program in April.

Clearly, the business itself is doing fine.

The problem is the trend

The problem is Netflix's growth trajectory. In the fourth quarter of 2025, revenue grew 17.6% year over year. Growth slowed to 16.2% in the first quarter of this year, then to 13.4% in the second. And management's third-quarter forecast calls for growth of about 12%.

Each step down is small. But that's three straight quarters of deceleration, with no floor yet in sight -- and some of it, I suspect, is simply the arithmetic of size catching up with the company.

Investors paid a premium for Netflix stock for years because its growth rate kept defying its size. As the growth rate has come down, the market has been repricing the stock from a premium growth story to something closer to a maturing one.

There is a caveat to the 22-times-earnings figure, however. Netflix's trailing profits include a one-time $2.8 billion termination fee the company collected in the first quarter after its deal for Warner Bros. Discovery's studio assets fell apart, and that windfall flatters the multiple.

Shares trade at about 20 times forward earnings. For a company forecasting operating income growth of more than 20% this year, that's arguably a fair price -- maybe even a modest one. But a multiple like this only stays fair if growth stabilizes somewhere near management's forecast. Valuations built on decelerating growth can keep compressing.

Of course, there are also reasons to wonder whether it stabilizes. Members watched more than 97 billion hours on the service in the first half of 2026, up 2% year over year. That's healthy engagement, but pricing is still one of the main drivers of revenue growth these days. The company also describes the entertainment industry as "dynamic and competitive," and it's fighting for viewing time against deep-pocketed rivals.

So, with shares a few dollars off their low and the froth mostly gone, is it finally time to buy? Not for me. The valuation is the most reasonable it has been in years, but the one thing that would make me comfortable paying even 20 times forward earnings (evidence that the growth step-down is leveling off) isn't in the numbers yet. After all, management's own forecast says the slowdown continues at least through the third quarter.

I'll keep watching for that floor. If revenue growth stabilizes in the low double digits while the operating margin keeps expanding, today's price could look cheap in hindsight. But until the trend turns, I'm staying on the sidelines.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.